Short-Termism in Publicly Listed Companies and Corporate Governance

Abstract

Short-termism is known as sacrificing long-term sustainable earnings for short-term returns. The pressure on management to obtain short-term results usually generates negative medium and long-term outcomes. This is because investors are inclined to sell their stocks when they hear about a shadow of bad news. In this context, business executives can decide to meet short-term shareholders expectations or prioritise the growth of their company. In other words, on the one hand, the company management should consider all possible economic variables within the scope of the necessity of protecting the company’s capital, on the other hand, it should also ensure the participation to the capital that will benefit the financial structure of the company, especially from the cash flow point of view. Short-termism hinders effective company management, particularly for publicly listed companies, due to the convenience of trading stock transactions and more transparent management decisions. Considering abovementioned facts, this study examines the increasing trend in short-termism as an intertemporal choice and discusses solutions that can be offered through corporate governance principles.