Peer performance and short-termism: evidence from green patenting activities

ABSTRACT

Theory and empirical evidence suggest short-termism endangers long-term corporate performance and economic growth. However, little is known about whether and how short-termism impacts the environment and society. Exploiting competitors’ idiosyncratic stock performance as an exogenous short-term peer return variation, we document that firms adjust their green innovation productivity downwards in response to higher short-term peer returns. We also document that higher peer short-term performance provides strong incentives for short-termism as firms strategically cut their R&D and SG&A expenditure to boost their short-term performance. Overall, our study documents the negative externalities that near-term returns can impose on competitors’ investment decisions.

KEYWORDS:

• Peer performance
• short-termism
• green innovation
• climatic risk
• competition threat

JEL CLASSIFICATION:

• G10
• G31
• G38
• M41

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ We identify the universe of green patenting activity using the Y02 category.https://www.cooperativepatentclassification.org/index.