Exploring the Debate of Short-Termism: a Theoritical and Empirical Analysis

Topics: Management, Term, Factor analysis Pages: 57 (13844 words) Published: October 7, 2012
Strategic Management Journal
Strat. Mgmt. J., 29: 273–292 (2008)
Published online 15 October 2007 in Wiley InterScience (www.interscience.wiley.com) DOI: 10.1002/smj.657 Received 2 September 2003; Final revision received 3 September 2007 EXPLORING THE DEBATE ON SHORT-TERMISM:

1 Cardiff Business School, Cardiff University, Cardiff, U.K. 2 Business School, Loughborough University, Loughborough, U.K. The debate on short-termism has focused on the economic factors of capital markets and performance measurement systems. Laverty (1996) has advocated the inclusion of individual and organizational dimensions to extend the debate. We reorient Laverty’s extended debate by drawing upon a broad management and accounting literature and thereby develop testable theoretical explanations of short-termism. The resulting hypotheses are tested in a telecommunications company. Our findings provide support for Laverty’s (1996) argument that individual and organizational factors are important determinants of short-termism. Copyright  2007 John Wiley & Sons, Ltd.

Time is significant as a reference point for the
strategic decision maker (Mosakowski and Earley,
2000). This fundamental point has significant consequences,
among which is the complex issue of
short-termism. Short-termism is argued to be associated
with restricted investment in tangible and
intangible assets; this follows the argument that
a preference for short-term performance leads to
unintended consequences for the long-term valueadding
capability of the firm (Hayes and Abernathy,
1980; Kaplan, 1984; Johnson and Kaplan,
1987; Porter, 1992). The origins of this preference
for the short term have been debated; arguments
center on pressures to meet expectations expressed
by capital markets (Bushee, 1998) and the analytic
detachment associated with performance measurement
systems (Hayes and Abernathy, 1980).
Keywords: short-termism; role ambiguity; social influence;
capital markets; performance measurement
*Correspondence to: David Marginson, Cardiff Business School, Cardiff University, Aberconway Building, Column Drive, Cardiff CF10 3EU, U.K. E-mail: MarginsonDE@cardiff.ac.uk
Despite considerable debate, however, there is surprisingly
little research that answers the questions
raised by these arguments (Porter, 1992). Research
is particularly lacking at the intrafirm level and
‘few attempts have been made to link individual
temporal orientation and the individual’s preferences
within an organizational setting’ (Laverty,
1996: 847).
Our aim in this paper is the study of shorttermism.
Our approach is first to draw upon Giddens’
(1984) insight that social practices presume
reflexivity. This leads us to expect that managers
are capable of revealing their reasons for acting
in accordance with short-termism. Inquiries
into these reasons can be conducted using qualitative
research and survey instruments. Our second
approach is to reorient the arguments that
surround short-termism by drawing upon a broad
literature for which there are established empirical
bases for inquiry within business contexts.
The resulting theoretical development provides the
first contribution of the paper and this is presented
in the next section. We review arguments
linking each of four areas to short-termism, and
Copyright  2007 John Wiley & Sons, Ltd.
274 D. Marginson and L. McAulay
develop hypotheses that have the potential to
address the questions raised. The second contribution
is to report exploratory empirical research
at the intrafirm level. We present sections that
describe a research program that we conducted
and we present the findings. The final section
presents conclusions, implications, limitations, and
recommendations for future research. Our findings
support Laverty’s (1996) argument that a limited
focus on economic causes, as represented by capital...
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