Boards of Directors' short-term perceptions and evidence of managerial short-termism in the UK

Abstract

Some researchers argue that capital market pressures are increasingly directed towards short-term performance evaluation of managers and their operations; others deny this. However, the crucial issue, it is argued in this paper, is managers' perceptions of this: for if they perceive capital markets as short-termist, they will behave in a short-term manner. This paper begins by offering a theoretical model for studying the effects of management perceptions on short-term behaviour of firms. Five hypotheses were developed and tested. The hypotheses related to the degree of short-term performance pressures as perceived by the boards of directors and the degree of emphasis their companies put on short-term financial control measures in determining R&D budgets. All the five hypotheses were supported, and the results were explained through the ‘model’. These results support the view that perceived short-term pressures influence firms' decisions to retain or adopt ‘Financial Control’ management styles in their R&D budget determination. They also show that perceptions are a valuable theoretical construct in exploring short-term behaviour in firms' Research and Development and related innovation activities.