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Boards of Directors' short-term perceptions and evidence of managerial short-termism in the UK

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  • Istemi Demirag

Abstract

Some researchers argue that capital market pressures are increasingly directed towards short-term performance evaluation of managers and their operations; others deny this. However, the crucial issue, it is argued in this paper, is managers' perceptions of this: for if they perceive capital markets as short-termist, they will behave in a short-term manner. This paper begins by offering a theoretical model for studying the effects of management perceptions on short-term behaviour of firms. Five hypotheses were developed and tested. The hypotheses related to the degree of short-term performance pressures as perceived by the boards of directors and the degree of emphasis their companies put on short-term financial control measures in determining R&D budgets. All the five hypotheses were supported, and the results were explained through the 'model'. These results support the view that perceived short-term pressures influence firms' decisions to retain or adopt 'Financial Control' management styles in their R&D budget determination. They also show that perceptions are a valuable theoretical construct in exploring short-term behaviour in firms' Research and Development and related innovation activities.

Suggested Citation

  • Istemi Demirag, 1998. "Boards of Directors' short-term perceptions and evidence of managerial short-termism in the UK," The European Journal of Finance, Taylor & Francis Journals, vol. 4(3), pages 195-211.
    • Handle: RePEc:taf:eurjfi:v:4:y:1998:i:3:p:195-211
    DOI: 10.1080/135184798337263
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    References listed on IDEAS

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    1. Michael E. Porter, 1992. "Capital Choices: Changing The Way America Invests In Industry," Journal of Applied Corporate Finance, Morgan Stanley, vol. 5(2), pages 4-16, June.
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    Cited by:

    1. Tahinakis, Panayiotis D., 2014. "R&D expenditures and earnings management: Evidence from Eurozone countries in crisis," The Journal of Economic Asymmetries, Elsevier, vol. 11(C), pages 104-119.
    2. Pedro Verga Matos & Miguel Coelho, 2016. "Short-Termism In Euronext Lisbon: An Empirical Analysis," Portuguese Journal of Management Studies, ISEG, Universidade de Lisboa, vol. 21(1), pages 49-76.
    3. Alan Hughes, 2014. "Short-Termism, Impatient Capital and Finance for Manufacturing Innovation in the UK," Working Papers wp457, Centre for Business Research, University of Cambridge.

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