Short-termism leads to lower returns, says S&P

Standard and PoorsS&P Dow Jones Indices (SPDJI), one of the world’s largest index providers, has urged asset owners to embrace long-term investment horizons after finding that senior managers feel more pressure to produce short-term results.

SPDJI surveyed 1,000 board members and senior executives and many said asset owners’ mind sets were dominated by a focus on quarterly reporting cycles.

Nearly 80% felt pressured to demonstrate strong financial performance over a period of just two years or less, and 44% used a time horizon of less than three years for setting strategy.

SPDJI said short-termism has the potential to undermine future economic growth, create more unemployment and lead to lower investment returns.

Nearly three-quarters of those surveyed said time horizons of over three years were needed and nearly 90% said longer time horizons would positively affect corporate performance in a number of ways, including by strengthening financial returns and increasing innovation.

Over 60% of the senior managers and board members surveyed said pressure to generate strong short-term results had increased in the past five years and the survey indicated the main cause of this was institutional investors.

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