3.4.1 Corporate influences

Question 1

What are corporate influences?

Answer 1

internal factors affecting business decisions including short of long term horizons and whether they use a scientific or intuitive approach.

Question 2

What is short-termism?

Answer 2

actions of managers that show obsession with immediate issues rather than long-term ones.

Question 3

What are symptoms of short-termism?

Answer 3

• inadequate spending on R+D
• accurate adjustments that inflate profits and currents
• bias to high dividend payments rather than re-investment
• cuts in employment, reducing human capital
• mainly focused on inorganic rather than organic growth
• bonuses + £ incentives based on short-term objectives

Question 4

What are some causes of short-termism?

Answer 4

• earning per share results in share buyback increases debt but increases share prices leading to bonuses
• takeover threats increases share prices and possible leadership changes
• investor attention and employee job security is mainly drawn from the latest financial performance

Question 5

What are corporate timescales?

Answer 5

the different strategies businesses can take and the expectation of when return on investment will be achieved (ROCE).

Question 6

What period of ROCE do PLCs have?

Answer 6

short-term as investment is focused on profit.

Question 7

What period of ROCE do LTDs have?

Answer 7

long-term as investment is more secretive helping future growth

Question 8

What is often associated with short-termism?

Answer 8

• cost-minimisation
• sales maximisation
• bonuses
• certain PRP
• less R+D
• Frequent leadership changes
• focus on short-term performance

Question 9

What is often associated with long-termism?

Answer 9

• capital intensive
• social objectives
• long ROCE
• Allocated resources to R+D
• heightened importance for employee welfare