When CEO Lack of Foresight Hurts Firm Performance

When CEO Lack of Foresight Hurts Firm Performance

NBS October 3, 2011
Increasing CEO myopia is affecting executives’ ability to create long-term value. Over the past 20 years, the average CEO tenure fell from eight years to less than four years and CEOs are under growing pressure to produce quick results. This short-term focus is undermining their company’s long-term performance and stakeholder relationships.

Murad Antia, Christos Pantzalis (both University of South Florida) and Jung Chul Park (Louisiana Tech University) explored the relationship between CEO expected tenure and firm outcomes such as financial performance, information risk and costs. They compared CEO age and tenure with the industry norm across 1,500 S&P firms between 1996 and 2003, accounting for the impact of compensation packages on expected tenure.

The research team found that:
Another solution, which warrants additional research, could lie within the managerial labour market. Since CEOs will make shorter-term decisions as they approach retirement, the availability of postretirement employment opportunities such as board seats could keep them focused on longer-term opportunities.
Summarized by

Elisa Alt (University of Seville) and the NBS team

Antia, Murad, Christos Pantzalis and Jung Chul Park. (2010). CEO decision horizon and firm performance: An empirical investigation. Journal of Corporate Finance, 16: 288–301.

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