Abstract
This paper discusses recent empirical evidence showing that the presence of earnings-per-share (EPS) targets is associated with short-termist behavior. EPS targets affect stock repurchases, R&D investments, capital expenditures, employment, and the structure of M&A deals. The practice of chasing EPS with changes in real investments appears to lead to long-term underperformance and can significantly affect economic growth and welfare. This discussion suggests that analysts, investors, and companies should stop focusing on EPS as a measure of performance. I also discuss how to break the link between performance targets and short-termism.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 174-206 |
| Number of pages | 33 |
| Journal | Review of Corporate Finance Studies |
| Volume | 8 |
| Issue number | 1 |
| DOIs | |
| State | Published - Mar 1 2019 |
| Externally published | Yes |
ASJC Scopus subject areas
- Economics and Econometrics
- Business and International Management
- Finance