The effect of decision time horizon on short termism: An experimental approach

Journal of Governance and Regulation

article

Abdallah Bader Mahmoud Alzoubi¹  Gavin Nicholson²  Mohammad Bader Mahmoud Alzoubi³ 

[1] Department of Accounting, Faculty of Economics and Administrative Sciences, Hashemite University;Business School, Queensland University of Technology;Royal Scientific Society

关键词: Boards of Directors;    Corporate Governance;    Short-Termism;    Board Process;    Cognitive Bias;   

DOI  :  10.22495/jgrv10i4siart9

学科分类：社会科学、人文和艺术（综合）

来源: Virtus Interpress

【 摘 要 】

Short-termism (i.e., the sub-optimal favouring of short-term performance over long-term performance) is generally explained as an outcome of the agency relationship whereby self-interested managers and/or stock market pressures distort the balance between short and long-term performance. We investigate if short termism (Crilly, 2017; Reilly, Souder, & Ranucci, 2016) is due to cognitive bias (temporal distortion) rather than agency costs. We test these hypotheses with an experimental approach by applying a 3x2 factorial design to manipulate temporal distortion on 60 non-conflicted decision-makers. Results suggest that individuals make inconsistent investment decisions based on differing payout time horizons. Participants faced with simple comparisons between investment opportunities were consistent across different time periods and followed a model of rational decision-making. In contrast, more complex decisions led to intertemporal inconsistency. We provide evidence that: 1) individuals on the whole struggle to deal with incorporating time into business decisions in a consistent way causing us to question the link between short-termism and agency theory; 2) principals likely view investment decisions inconsistently across time and so are a cause of sub-optimal investment decision-making and 3) we need to look beyond studies of moral hazard associated with agency theory and/or myopic market pricing when investigating short-termism.

【 授权许可】

CC BY-NC