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Where companies with a long-term view outperform their peers – McKinsey Gbl

FinalytixResearch Where companies with a long-term view outperform their peers – McKinsey Gbl

Where companies with a long-term view outperform their peers – McKinsey Gbl

Where companies with a long-term view outperform their peers – by McKinsey Global Institute

Our new Corporate Horizon Index provides systematic evidence that a long-term approach can lead to superior performance for revenue and earnings, investment, market capitalization, and job creation.

Corporate short-termism has been the subject of ongoing debate among leaders in business, government, and academia for more than 30 years, but hard evidence that short-termism genuinely detracts from company performance and economic growth has remained scarce. To fill this gap and better understand capitalism for the long term, we have created a systematic measurement of long- and short-termism at the company level. Our findings show that companies we classify as “long term” outperform their shorter-term peers on a range of key economic and financial metrics (exhibit).

2001-2015 performance of long-term and short-term companies on earnings, revenue, and market cap

Our five-factor Corporate Horizon Index uses a data set of 615 large and mid-cap US publicly listed companies from 2001 to 2015 and is based on patterns of investment, growth, earnings quality, and earnings management. It enables us to separate long-term companies from others and to compare their relative performance, after controlling for industry characteristics and company size.

 

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