Corporate short-termism has been the subject of ongoing debate among leaders in business, government, and academia for more than 30 years, but hard evidence that short-termism genuinely detracts from company performance and economic growth has remained scarce. To fill this gap and better understand capitalism for the long term , we have created a systematic measurement of long- and short-termism at the company level. Our findings show that companies we classify as “long term” outperform their shorter-term peers on a range of key economic and financial metrics (exhibit).
From a long-run perspective, new business formation is important because of the links between innovation, R&D, and new start-ups. New businesses are often formed to develop, implement, and market new technologies. To take one example, Kirchhoff et al. (2002) examines the link between university-based R&D activity and new business creation and finds that “university R&D expenditures are significantly related to new firm formations in the same [Local Market Area].” Thus delays in new business formation may mean delays in the development and adoption of new technologies, causing long-run damage to the economy. 7