Evidence of Managerial Short‐termism in the UK[Note 1. The authors thank the Research Board of the Institute ...]

This paper considers an aspect of possible managerial short‐termism in the UK. It discusses some potential motivations for that phenomenon and presents evidence which suggests that short‐termism exists and is positively associated with managerial perceptions of capital market valuation practices. Two hypotheses were developed and tested using the responses concerning R&D expenditure obtained from a postal questionnaire sent to the finance directors of the Times 1000 companies. These were that many top managers in UK quoted companies behave in a ‘short‐termist’ manner; and that the extent to which managers behave as hypothesized above is positively associated with their perceptions of the level of emphasis placed by the capital market on measurements related to short‐term reported earnings. The results obtained support the hypotheses. Overall, the evidence of the paper is consistent with the view that many finance directors of large UK companies are short‐termist in their perceptions and that such short‐termism is positively associated with their beliefs about the level of emphasis placed by the capital market on figures of reported earnings.