ANALYSIS

McKinsey: Long game is best play

Finally there is a robust measure of whether or not corporations that focus on the long term achieve better results. According to the McKinsey Global Institute, the answer is a resounding yes.

McKinsey has released a discussion paper, Measuring the Economic Impact of Short-termism, which analyses whether short-termism genuinely detracts from corporate performance and economic growth.

Using a data set covering 615 large- and mid-cap publicly listed US companies from 2001 to 2015, McKinsey has created a five-factor corporate horizon index.

The data looks at patterns of investment, growth, earnings quality and earnings management. It separates companies with a long-term focus from others and compares their performance.

Among the findings:

  • From 2001-14, the revenue of long-term firms cumulatively grew 47 per cent more, on average, than the revenue of other firms, with less volatility.
  • Long-term firms invested more than other firms from 2001 to 2014.
  • Long-term companies exhibited stronger financial performance over time
  • From 2001-15, long-term firms added nearly 12,000 more jobs, on average, than other firms.

The research shows that firms with a long-term focus exhibit stronger fundamentals, deliver stronger superior financial performance, continue to invest in difficult times and add more to economic output and growth.

 

To view the discussion paper, click here.