Is It Time to Get Rid of Earnings-per-Share (EPS)?

Heitor Almeida

The Review of Corporate Finance Studies, 2019, vol. 8, issue 1, 174-206

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.Received June 20, 2018; editorial decision October 29, 2018 by Editor Andrew Ellul

Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:oup:rcorpf:v:8:y:2019:i:1:p:174-206.

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