3.4-corporate influences Flashcards
What is a corporate time scale?
when a business expects to gain a return on investments, and how far into the future they see strategies for.
What is short termism?
where firms make decisions over short time periods, rather than long term.
Signs of short termism?
-maximising short term profits
-investing less in research and development- may create poor quality products so competitors gain a competitive advantage
-more short term employment-
cheaper in short term, but employees may get demotivated and leave which increases recruitment and selection costs.
-invest less in training-makes employees less productive.
-High dividend pay outs to satisfy shareholders- less retained profit
-excessive focus on acquisitions rather than organic growth
causes of short termism
-stock markets- growing use of earnings per share used as a performance measure- boosts share buy backs so businesses buy shares in their own company to attract investors and encourage the sale of shares, by boosting the share price.
-threat of takeover-need to increase short term profit to make business look more successful, and harder to takeover.
-a hostile takeover is where the business doesn’t want to be taken over, so need to persuade shareholders to remain loyal.
effects of short termism
-long term profits threatened
-lose competitive advantage in overseas markets
-increased costs due to short term contracts
-businesses reluctant to invest in training and development to try reduce costs
