Peer performance and short-termism: evidence from green patenting activities
APPLIED ECONOMICS LETTERS(2023)
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.
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Key words
peer performance,short-termism
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