Authors contend that switching from short-term gains to a long view improves profits and sales

By John Simons, The Wall Street Journal, Dec. 27, 2016.

Should corporate leaders focus on short-term gains or take the long view?

Adherents of long-term management will find potent ammunition in a new study from a pair of management researchers who conclude that myopic leaders are hampering businesses by failing to invest in innovation and risky projects.

What’s more, they say that switching to a long-term outlook can improve a company’s operating performance by several measures—return on assets, operating profits, and sales growth—within two years.

Simply put, an increased long-term orientation fosters innovation and enhances market value, argue authors Caroline Flammer of Boston University’s Questrom School of Business and Pratima Bansal of the University of Western Ontario’s Ivey Business School. Their paper, “Does a Long-Term Orientation Create Value?,” is slated to publish in a coming issue of the Strategic Management Journal.

To determine whether executives with a long view logged better performance, researchers identified 808 shareholder proposals on long-term executive compensation between 1997 and 2012, and examined the measures that passed by a small margin of votes.

The executive compensation proposals included awards of restricted stock, restricted stock options, and long-term incentive plans. The researchers measured the effects of approved proposals during the year of passage, one year later, and then three years after passage.

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