Is it time to get rid of earnings-per-share (EPS)?

Research output: Contribution to journalArticle

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 languageEnglish (US)
Pages (from-to)174-206
Number of pages33
JournalReview of Corporate Finance Studies
Volume8
Issue number1
DOIs
StatePublished - Jan 1 2019

ASJC Scopus subject areas

  • Economics and Econometrics
  • Finance
  • Business and International Management

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