Peer performance and short-termism: evidence from green patenting activities

William Mbanyele, Hongyun Huang and Linda Tinofirei Muchenje

Applied Economics Letters, 2024, vol. 31, issue 17, 1640-1644

Abstract: Theory and empirical evidence suggest short-termism endangers long-term corporate performance and economic growth. However, little is known about whether and how short-termism impacts the environment and society. Exploiting competitors’ idiosyncratic stock performance as an exogenous short-term peer return variation, we document that firms adjust their green innovation productivity downwards in response to higher short-term peer returns. We also document that higher peer short-term performance provides strong incentives for short-termism as firms strategically cut their R&D and SG&A expenditure to boost their short-term performance. Overall, our study documents the negative externalities that near-term returns can impose on competitors’ investment decisions.

Date: 2024
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DOI: 10.1080/13504851.2023.2205088

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