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Short-termism and the Financial Consequences: A Look at the Outcome vs Forecast Turnover and the ROA Development
Stockholm University, Faculty of Social Sciences, Stockholm Business School.ORCID iD: 0000-0003-0381-9305
2018 (English)Conference paper, Oral presentation with published abstract (Other academic)
Abstract [en]

In this study the financial outcome of short-termism is estimated. More exactly, in the study it is estimated whether short-termism affects the difference between forecasted turnover growth for five years and the actual growth, and also the effect on the average ROA for five years. In several studies it is revealed that different corporate actions are taken by managers (to fulfil the short-terms expectations) that do not serve the long-term interest of the firm or its shareholders. These actions include, among others, earnings manipulation, unnecessary cost cutting, and underinvestment. The main explanation offered for corporate short-termism is the short-term focus of the management, i.e. the compensation systems with a short-term focus, or the short employment horizons, combined with weak corporate governance. This study is performed with questionnaires to the Chairpersons, the CEOs, and the CFOs of all listed Nordic companies listed on the NASDAQ OMX Nordic list or Oslo Stock Exchange. First, the overall result was that short-term pressure has a significant negative effect on both for forecast accuracy (the prognostic turnover and the actual outcome) and ROA development. Secondly, when we study the different categories of short-term pressure, we found that the forecast accuracy is larger when there is a large short-term pressure from media and the union, the media’s effect has a negative effect while the union has a positive effect, i.e. the union yields less discrepancy between the prognostic turnover and the actual outcome. Also, the current ROA and the respondent’s position within the firm (significant for the CEO) positively affect the forecast accuracy. When it comes to the short-term pressure and the highest average ROA over five years, the results indicate that media has a negative effect while the union has a positive effect.

Place, publisher, year, edition, pages
2018.
Keywords [en]
short-termism, corporate governance, institutional ownership, earnings management
National Category
Business Administration
Research subject
Business Administration
Identifiers
URN: urn:nbn:se:su:diva-160847OAI: oai:DiVA.org:su-160847DiVA, id: diva2:1254283
Conference
9th International Research Meeting in Business and Management, IPAG Nice, France, July 5-7, 2018
Available from: 2018-10-08 Created: 2018-10-08 Last updated: 2018-10-10Bibliographically approved

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CiteExportLink to record
Permanent link

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Cite
Citation style
  • apa
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • Other style
More styles
Language
  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
  • html
  • text
  • asciidoc
  • rtf