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Explaining temporal orientation: Evidence from the durability of firms' capital investments
Author(s) -
Souder David,
Bromiley Philip
Publication year - 2012
Publication title -
strategic management journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 11.035
H-Index - 286
eISSN - 1097-0266
pISSN - 0143-2095
DOI - 10.1002/smj.970
Subject(s) - durability , stock (firearms) , incentive , asset (computer security) , compensation (psychology) , empirical evidence , depreciation (economics) , economics , business , microeconomics , industrial organization , profit (economics) , computer science , engineering , financial capital , mechanical engineering , psychology , philosophy , computer security , capital formation , epistemology , database , psychoanalysis
In contrast to broad generalizations about the short‐termism of managers, this paper explains changes in the temporal orientation of specific firms over time based on performance relative to aspirations and top management team incentives. We gain empirical traction on temporal orientation by measuring the durability of acquired property, plant, and equipment (asset durability) from reported data on depreciation expense. Consistent with predictions, we find that performance relative to aspirations positively influences asset durability. Surprisingly, we find no evidence that stock‐based compensation produces the same effect. Instead, we find stock‐based compensation lowers asset durability. Copyright © 2011 John Wiley & Sons, Ltd.