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RAPPORT

Focusing on the short or long term?

The causes and consequences of the time horizon of management of Dutch listed companies

Short-termism refers to the tendency of company management to take actions that maximize reported short-term earnings and stock prices at the expense of long-term company performance. It has received quite some attention lately, in the public as well as in the academic domain. The debate in these domains focuses on understanding the causes and consequences of short-termism. Research on these causes and consequences is still in its infancy and is almost exclusively based on data from companies in Anglo-Saxon countries. Yet, analyzing the causes and consequences of managerial decision-making related to the trade-off between short- and long-term outcomes may be equally important in different contexts. This certainly also holds for the Netherlands.

Eumedion has a particular interest in researching the causes and consequences of short-termism, because it would like to know whether and to what extent Dutch companies focus on creating short-term value. Moreover, it would like to know more about the causes and consequences of the time horizon applied by Dutch company management in the decision-making process. This may be helpful in determining whether and to what extent institutional investors can play a role in influencing the time horizon of management and its consequences. Therefore, it has requested the Institute of Governance and Organizational Responsibility (iGOR) of the University of Groningen to carry out a research project with the aim of identifying to what extent management of Dutch listed companies focus on creating short-term value, i.e. to what extent are corporate policies characterized by short-termism. As a response to the request made by Eumedion, the research in this report focuses on the following three main research questions:

(1) To what extent does management of Dutch listed companies focus on creating short-term value;
(2) what are the determinants of short-termism; 
(3) what are the consequences for corporate decision-making, financial performance and long-term value creation?

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