scholarly journals The effect of decision time horizon on short termism: An experimental approach

2021 ◽  
Vol 10 (4, special issue) ◽  
pp. 293-301
Author(s):  
Abdallah Bader Mahmoud Alzoubi ◽  
Gavin Nicholson ◽  
Mohammad Bader Mahmoud Alzoubi
Keyword(s):  
Decision Making ◽  
Agency Theory ◽  
Experimental Approach ◽  
Investment Decision ◽  
Investment Decisions ◽  
Decision Time ◽  
Long Term Performance ◽  
Term Performance ◽  
Short Termism

Short-termism (i.e., the sub-optimal favouring of short-term performance over long-term performance) is generally explained as an outcome of the agency relationship whereby self-interested managers and/or stock market pressures distort the balance between short and long-term performance. We investigate if short termism (Crilly, 2017; Reilly, Souder, & Ranucci, 2016) is due to cognitive bias (temporal distortion) rather than agency costs. We test these hypotheses with an experimental approach by applying a 3x2 factorial design to manipulate temporal distortion on 60 non-conflicted decision-makers. Results suggest that individuals make inconsistent investment decisions based on differing payout time horizons. Participants faced with simple comparisons between investment opportunities were consistent across different time periods and followed a model of rational decision-making. In contrast, more complex decisions led to intertemporal inconsistency. We provide evidence that: 1) individuals on the whole struggle to deal with incorporating time into business decisions in a consistent way causing us to question the link between short-termism and agency theory; 2) principals likely view investment decisions inconsistently across time and so are a cause of sub-optimal investment decision-making and 3) we need to look beyond studies of moral hazard associated with agency theory and/or myopic market pricing when investigating short-termism.

Heroic leadership illusions in football teams: Rationality, decision making and noise-signal ratio in the firing of football managers

Leadership ◽  
2012 ◽  
Vol 8 (2) ◽  
pp. 169-185 ◽  
Author(s):  
Jan Ketil Arnulf ◽  
John Erik Mathisen ◽  
Thorvald Hærem
Keyword(s):  
Decision Making ◽  
Team Leadership ◽  
Noise Signal ◽  
Decision Makers ◽  
Signal Ratio ◽  
Management Positions ◽  
The Individual ◽  
Long Term Performance ◽  
Term Performance

Similar to practices in top management positions worldwide, there has been an increasing tendency in recent decades to fire football managers when the team does not perform to the stakeholders' expectations. Previous research has suggested that improvements after change of manager are a statistical artefact. Based on 12 years of data from the Norwegian Premier League, we conduct a natural experiment showing what would have taken place if the manager had not been fired. In this case, the performance might have improved just as well and even quicker. Building on theories in expertise and decision making, we explore the data and argue that decision makers may be fooled by randomness and learn wrong lessons about team leadership. Our analyses support a post-heroic view of team leadership as an emergent, output variable. Exaggerated focus on the individual manager may ruin long-term performance. Practical implications are discussed.

Does underconfidence matter in short-term and long-term investment decisions? Evidence from an emerging market

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Maqsood Ahmad
Keyword(s):  
Decision Making ◽  
Stock Exchange ◽  
Emerging Market ◽  
Investment Decision ◽  
Investment Decisions ◽  
Investment Strategies ◽  
Short Term ◽  
Content Type ◽  
Investment Decision Making

PurposeThe purpose of this article is to clarify the mechanism by which underconfidence heuristic-driven bias influences the short-term and long-term investment decisions of individual investors, actively trading on the Pakistan Stock Exchange.Design/methodology/approachInvestors' underconfidence has been measured using a questionnaire, comprising numerous items, including indicators of short-term and long-term investment decision. In order to establish the influence of underconfidence on the investment decisions in both the short and long run, a 5-point Likert scale questionnaire has been used to collect data from the sample of 203 investors. The collected data were analyzed using SPSS and AMOS graphics software. Hypotheses were tested using structural equation modeling technique.FindingsThis article provides further empirical insights into the relationship between heuristic-driven biases and investment decision-making in the short and long run. The results suggest that underconfidence bias has a markedly negative influence on the short-term and long-term decisions made by investors in developing markets. It means that heuristic-driven biases can impair the quality of both short-term and long-term investment decisions.Practical implicationsThis article encourages investors to avoid relying on cognitive heuristics, namely, underconfidence or their feelings when making short-term and long-term investment strategies. It provides awareness and understanding of heuristic-driven biases in investment management, which could be very useful for finance practitioners' such as investor who plays at the stock exchange, a portfolio manager, a financial strategist/advisor in an investment firm, a financial planner, an investment banker, a trader/broker at the stock exchange or a financial analyst. But most importantly, the term also includes all those persons who manage corporate entities and are responsible for making its financial management strategies. They can improve the quality of their decision-making by recognizing their behavioral biases and errors of judgment, to which we are all prone, resulting in more appropriate investment strategies.Originality/valueThe current study is the first to focus on links between underconfidence bias and short-term and long-term investment decision-making. This article enhanced the understanding of the role that heuristic-driven bias plays in the investment management and more importantly, it went some way toward enhancing understanding of behavioral aspects and their influence on the investment decision-making in an emerging market. It also adds to the literature in the area of behavioral finance specifically the role of heuristics in investment strategies; this field is in its initial stage, even in developed countries, while, in developing countries, little work has been done.

Financial Literacy Effect and Fintech in Investment Decision Making

2021 ◽  
Vol 19 (1) ◽  
pp. 168
Author(s):  
Yopy Junianto ◽  
Cliff Kohardinata
Keyword(s):  
Decision Making ◽  
Financial Literacy ◽  
Investment Decision ◽  
Investment Decisions ◽  
Literacy Skills ◽  
Investment Decision Making ◽  
Business Opportunities ◽  
Technological Developments ◽  
Short And Long Term

Indonesia is a country that has a fairly good level of investment from year to year, based on KSEI 2020 data. This indicates that Indonesia's business opportunities are quite promising. This increase in investment was also followed by technological developments in the financial sector as we know fintech. The results of this fintech product have been widely used by many groups, especially for investment activities. This is one of the driving points for increasing investment in Indonesia. In general, investments are usually made by people who have sufficient literacy skills. Because various experiences state that someone who has good financial literacy will be able to make good decisions in terms of finances that have both short and long term impacts. However, the current condition has a different pattern where even without financial literacy the cloud community is currently able to invest even if they only get a little information. This research was conducted to see and explain the phenomena that occurred and provide confirmation that the shift in perspective patterns occurred. The result of the research states that financial literacy does not influence a person in making decisions, while fintech is a factor that influences someone in making investment decisions.

scholarly journals Determining Agency Theory Framework through Financial Leverage & Insider Ownership: Evidence from Pakistan

2017 ◽  
Vol 9 (3) ◽  
pp. 21 ◽  
Author(s):  
Hafiz Mustansar Javaid ◽  
Snober Javid
Keyword(s):  
Agency Theory ◽  
Stock Exchange ◽  
Cost Minimization ◽  
Agency Cost ◽  
Public Image ◽  
Insider Ownership ◽  
Financial Firms ◽  
Long Term Performance ◽  
Term Performance

Sound practices of corporate governance help firms to lift their performance and bring in investors’ confidence while enabling shareholders’ rights protection, qualifying the legal requirements and spotlight the vast public image about how they are operating their business. Most of the previous literature on agency theory in Pakistan has demonstrated connection among ownership structure on firm performance, value and profitability. This study extends the literature by proposing the effect of change in leverage & insider equity ownership on agency cost mitigation. Proxy is used to measure agency cost: Expense ratio: Operating expense / annual sales. We applied “Fixed effect” method on sample of 41 non-financial firms from four economic groups listed in Pakistan Stock Exchange from the period of 2010-2014. The practical implications of the study is that those investors who desire long term performance of the firm may perhaps invested in those firms which are owned by insiders or containing acceptable amount of debt, for the reason that such firms try to maintain & continue long term performance by agency cost minimization & shareholders’ interests protections.

Decision-Making Challenges of Women Entrepreneurship in Family Business Succession Process

2017 ◽  
Vol 25 (04) ◽  
pp. 411-439 ◽  
Author(s):  
Veland Ramadani ◽  
Léo-Paul Dana ◽  
Nora Sadiku-Dushi ◽  
Vanessa Ratten ◽  
Dianne H. B. Welsh
Keyword(s):  
Decision Making ◽  
Family Business ◽  
Succession Planning ◽  
Family Businesses ◽  
Policy Implications ◽  
Decision Making Process ◽  
Long Term Performance ◽  
Business Succession ◽  
Term Performance

The decision-making process concerning succession issues for family businesses is crucial as it affects long term performance and sustainability. However, while succession issues in family business has been extensively studied, the decision-making process for women-owned family businesses is sparse, particularly in transition economies. This is despite the growth of women-owned businesses worldwide. This study explores the succession decision-making process in women-owned small family businesses in Kosovo using a qualitative approach. The findings suggest that group decision making is important in family businesses and plays a role in determining how gender influences succession planning. Managerial and policy implications are discussed.

Sign in / Sign up

Export Citation Format

Share Document