Fearless Idea 20: Think Long-Term

SMITH BRAIN TRUST — It might be the biggest but least-talked-about drag on the U.S. economy and, paradoxically, it might be why your equity portfolio looks so good, with perky stock prices, cushy buybacks and better-looking dividends. It’s called short-termism, or quarterly capitalism. It’s what happens when companies focus on returning money to shareholders each quarter, rather than spending money on productivity improvements or on research and development that could result in the next big innovation.

Professor Rachelle C. Sampson at the University of Maryland's Robert H. Smith School of Business, in recent research with Smith School Ph.D candidate Yuan Shi, shows that U.S. capital markets have become increasingly focused on the short-term in recent decades. The research, which centers on U.S. markets from 1980-2013, demonstrates the rise in short-termism over the past 30 years and suggests some drivers of this change. 

Publicly traded companies are under increasing pressure from shareholders to deliver short-term returns, rather than planning for long-term success. A shortening time horizon eviscerates future sources of market and productivity growth, depresses wage growth and stunts economy-wide progress. The implications are stark: short-termism has the potential to create a sinkhole under the U.S. economy, threatening the wages, standards of living and the general well-being of Americans.

"It’s fair to say that a short-term perspective has the potential to undermine the traditional growth engines of the American economy, and bankrupt our future," Sampson says. 

Rachelle C. Sampson is an associate professor of Logistics, Business and Public Policy at the University of Maryland’s Robert H. Smith School of Business. She previously taught for five years at the Stern School of Business at New York University.  A former resident of Australia, she earned a law degree from Queensland University of Technology and a PhD in Business Economics from the University of Michigan. 

Research interests: Her research centers on two primary themes: 1) investigating how firms foster knowledge creation and commercialization via organizational choices; and 2) examining evidence of corporate short-termism and implications for firm investment behavior.

Selected accomplishments: Sampson received the Distinguished Ph.D Alumni Award from the University of Michigan, Ross School of Business, in 2012 for her research. She also received the Ameritech Foundation Research Fellowship and the Gerald and Lillian Dykstra Fellowship at the University of Michigan. She currently serves on the editorial boards of Strategic Management Journal  and Organization Science.

About this series: The Smith School faculty is celebrating Women’s History Month 2017 in partnership with ADVANCE, an initiative to transform the University of Maryland by investing in a culture of inclusive excellence. Daily faculty spotlights support activities from the school’s Office of Diversity Initiatives, culminating with the sixth annual Women Leading Women forum on March 30, 2017.

Other fearless ideas from: Rajshree Agarwal  |  Ritu Agarwal  |  Leigh Anenson  |  Kathryn M. Bartol  |  Christine Beckman  |  Margrét Bjarnadóttir  |  M. Cecilia Bustamante  |  Rellie Derfler-Rozin  |  Waverly Ding  |  Wedad J. Elmaghraby  |  Rosellina Ferraro  |  Rebecca Hann  |  Amna Kirmani  |  Hanna Lee  |  Hui Liao  |  Wendy W. Moe  |  Courtney Paulson  |  Louiqa Raschid  |  Rebecca Ratner  |  Rachelle Sampson  |  Debra L. Shapiro  |  Cynthia Kay Stevens  |  M. Susan Taylor  |  Vijaya Venkataramani  |  Janet Wagner  |  Yajin Wang  |  Yajun Wang  |  Liu Yang  |  Jie Zhang  |  Lingling Zhang  |  PhD Candidates