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Firm ownership and managerial temporal orientation
Master Thesis
Name: Marnix Contant
Student no.: 10019413
Date: 29 June 2015
2 This document is written by Student Marnix Contant who declares to take full responsibility for the contents of this document.
I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it.
The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
3 Table of content Foreword 5 Abstract 6 Introduction 7 Literature Review 9
- Managerial temporal orientation 9
- Economic short-termism & managerial temporal orientation 10
- Economic decision-making 12
- Firm ownership 14
- Firm ownership & managerial temporal orientation 17
- Agency theory 18
- Incentive contracts 19
- Framework influencing managerial temporal orientation 20
Conceptual Framework 23
- Different types of shareholders 23
- Business systems around the world 25
- Incentive contracts and managerial temporal orientation 27
Research Design 28 - Research design 28 - Sample 28 - Data collection 29 - Measures 31 - Family firm 32 - Institutional shareholders 32
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- Concentration of shares 32
- Corporate governance systems 33
- Incentive contracts 33 - Control variables 33 Results 34 - Descriptive statistics 35 - Transformation of variables 36 - Correlations 36 - Regressions 37
- Alternative methods to measure managerial temporal orientation 41
Discussion 43
- Summary of results 43
- Family firms & managerial temporal orientation 44
- Institutional shareholder and managerial temporal orientation 45 - Moderators: concentration of shares and corporate governance committees 45
- Incentive contracts: bonus plans and stock options 45
- Theoretical implications 46
- Limitations and suggestions for future research 47
Conclusion 48
References 49
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Foreword
The final work of my thesis is this part. After six months of hard working I am proud to present this work. It was a journey with ups-and-downs. At this stage I would like to thank my supervisor Robert Kleinknecht with his great knowledge and supervision about this subject. Moreover, I would like to thank my colleagues Frits, Marjolein and Sabina who assisted my with the content analysis of this paper. Without this help I was unable to present my thesis. For this moment it is time to put away my pencil for a while. I hope that you will enjoy my thesis.
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Abstract
This research investigated the relationship between firm ownership and managerial temporal orientation. Academic literature argues that managerial temporal orientation is of big
importance when strategic decisions are made. Every individual thinks different about the past, present and future. This can lead to misalignment between company owners and their management team. Moreover, concentration of shares and corporate governance committees can lead to an more long-term focus of managerial temporal orientation and incentive contract like bonus plans and stock options to more a more short-term orientation. Current literature investigated managerial temporal orientation as a static object between concentrated and dispersed ownership. This study is focusing on different types of companies and the implications for managerial temporal orientation. In order to measure managerial temporal orientation a content analysis of 700 European companies from 2006 is conducted and written quarterly reports are measured on long-term and short-term words. This managerial temporal orientation score is used to test the hypothesis. Although all the literature argues that family-owned firms and companies where the largest shareholder is institutional are more focused on long-term managerial temporal orientation, this is not supported in this research. Moreover, concentration of shares and corporate governance committees do not moderate this
relationship and are also not supported. Finally, incentive contracts like bonus plans and stock options for a CEO do also not influence a more short-term focus for companies. A reason why all the hypothesis are reject could derive from the fact that the database that is used provided not enough usable data and the N-scores where too low. Further researched is advised to have greater N-scores in order to test the hypothesis again.
Key-words: Managerial temporal orientation, firm ownership, family-owned firm, largest
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1. Introduction
Fundamental principles of the firm’s strategic decision-making process contain temporal considerations (Venkatraman, 1989). Almost everyone faced the pressure of time, also stated as ‘ticking of the clock’ (Shipp, Edwards & Lambert, pp. 2, 2009). The increasing importance of time captures the interest of researchers on temporal issues on different levels like
individual or organizational level. Research about temporal orientation shows that every individuals thinks differently about the past, present and future (Bluedorn, 2002). For example, previous academic literature states that managers highly favor short-term projects with direct results instead of even more profitable long-term projects (Lavarty, 1996), which will lead to investment of unattractive short-term projects and underinvestment of new technologies (Shleifer & Vishny, 1997). Temporal orientation is therefore important to investigate, because it affects decision-making processes, goal-settings, investments, and self-regulation (Bandura, 2001; Carver & Scheier, 1982).
Another important principle that determines the strategic decision-making process is firm ownership (Gospel & Pendleton, 2003). Fundamental differences between ownership can also exist from national business systems, corporate governance systems, owner identity or concentration of ownership (Gospel & Pendleton, 2003, La Porta, Lopez-de-Silanes, Shleifer & Vishny, 2000, Shleifer & Vishny, 1999). Every type of owner has it’s own preferred decision-making horizon. However, this can clash with the decision-making process of the management team who makes the day-to-day decisions and have a different temporal orientation (Gospel & Pendleton, 2003, Souder & Bromiley, 2012).
Despite the extensive conceptual research suggesting the different reasons for a varying managerial temporal orientation, current academic literature lacks the empirical research on this topic (Souder & Bromiley, 2012). Moreover, Aquilera & Jackson (2010) amplify that ‘most studies of firm ownership focus on the static comparison of concentrated
8 or dispersed ownership’ (Aquilera & Jackson, 2010; p. 523). Moreover, firm owners that want to have a large control over the company make use of different types of corporate governance systems to influence the management team. This can be done via internal or external systems (Shleifer & Vishny, 1997). Examples of this can be seen as bonus incentives and stock options for the management team when certain targets are obtained. Therefore, this research is focused on the relationship between firm ownership and the changing managerial temporal orientation of companies. The main research question will be:
RQ: ‘To what extent do shareholders affect the managerial temporal orientation”
In this research, insights from the agency, economic and behavioural theory will be used together with corporate incentives to explain the changes of managerial temporal orientation. Moreover, there is theorized that managerial temporal orientation varies over multiple factors: the firm’s owner, concentration of ownership, corporate governance influences and incentive contracts that are provided to the executives. In order to test this, a content analysis is of CEO conference calls is executed to measure managerial temporal orientation and a regression analysis is conducted to test the hypothesis. The results of this thesis can contribute in different ways towards the existing literature. First of all it can contribute to the theory of the ‘agency theory’ and see if the control and influence from shareholders towards managers have forgone implications to a firm. Secondly, it can contribute to the practical field where managers can learn how owners change the time horizon of a company. Moreover they are able to see how they can overcome this influence from company owners.
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2. Literature review of firm ownership and managerial temporal orientation
Managerial Temporal Orientation
Academic literature reveals big differences between managerial temporal orientation and investment evaluation techniques (Bower, 1970). Economic theories argue that a normal investment decision must be taken according to the Net Present Value (NPV) rule. This method is based on time in order to calculate expected returns. However, time should not influence the decision-making process (Cornell, 1999; from Shipp, Edwards & Lambert, 2009). Currently, managers do use the aspect of time, namely the payback period, as a second bellwether (Narayanan, 1985). Although the research of managerial temporal orientation is very extensive, aspects of this orientation is most of the time poorly understood (Mitchell & James, 2001). A reason for this is caused by the very limited possibilities to measure. Therefore it rarely appears in empirical research (Souder & Bromiley, 2012). During this research, temporal orientation will be defined as ‘cognitive involvement in the past, present or future’ (Shipp, Edwards & Lambert, 2009, pp. 3).
Managerial choices depend on many factors. Different options need to be considered before making a choice (Ocasio, 1997). Using formal methods a manager can be helped to make a deliberate choice that mitigates for ambiqity & uncertainty (Souder & Bromiley, 2012). The amount of uncertainty & ambiqity can vary over time. Therefore, managerial temporal orientation is not seen as a static attribute, but as a dynamic one that can be changed according to influences from outside and inside the firm (Souder & Bromiley, 2012). Shipp, Edwards & Lambert (2009) argue that every individual has it’s own preferred focus, which can be more in the past, present or future. However, it is also possible that an individual is equally focused on all three segments. Lavarty (1996) disagrees with this and argues that individuals, and especially managers have to make ‘intertemporal choices’ and are thereby
10 more focused on short-termism. The next section will provide a brief explanation of this.
Economic short-termism and managerial temporal orientation
Laverty (1996) describes economic short-termism as ‘representing decisions and outcomes that pursue a course of action that is best for the short term but suboptimal over the long run’ (Laverty, 1996, pp. 826). The very central issue of this problem is the phenomenon of
intertemporal choice. This can be seen as a trade-off between two projects, where the manager will choose for the short-term solution. Project (A) does not need high investments and will generate moderate profits for the upcoming years. However, project (B), needs a big investment. It will have losses in the near future and will generate high profits in the far future. The first project (A) does not need high investments and will generate moderate profits for the upcoming years. A manager needs to make a choice between investing in one of the two projects. Because the results of the second projects are positive on the short-run and this project does not need an
initial investment he will choose project B. This is optimal for the short-run but suboptimal for the long-run.
Other reasons for economic short-termism in a managerial temporal orientation are flawed management practices, managerial opportunism, fluid and impatient capital and stock market myopia. Flawed management practices arise from difficult and formal management techniques to remain competitive in the future (Laverty, 1996). An example of these techniques could be valuation methods. Hayes & Abernathy's (1980; from Ross, 1995) revealed that the increasing use of difficult valuation techniques could lead to
11 underinvestment of profitable projects. This is a result from very hard-to-quantify expected return that are ignored in formal valuation techniques. A second example of flawed
management techniques is blind staring at long-term performance for a long period. This can take so much time that it is more efficient to invest into short-term projects. Finally, a lacking of motivation for long-run investments could be disastrous for a company, especially when this project is very important for the long-turn well being of a firm (Loescher, 1984; from Lavarty, 1996).
The second reason that Laverty (1996) points out is managerial opportunism. This means that a manager can make an optimal choice for him as person, but might be suboptimal for the company as a whole. Managers might prefer their own interest more in order to obtain short-term results (Laverty, 1996). Moreover, Shleifer & Vishny (1997) also agree that a manager can have personal incentives to invest into projects where he will get personal benefits. For example, imagine a manager invests into a project that will give him $500 of personal benefit, but will cost the shareholder $3000. The manager is willing to do this because of his benefits. Jensen & Meckling (1976) state that the manager is making
inefficient choices for the company. If this is the case, shareholders should pay the manager $501 to overcome investment into wasted projects, according to the Coase theorem (Shleifer & Vishny, 1999). However, shareholders do not pay management for their individual actions. Therefore, an efficient balance cannot be found.
Porter explained the third reason (1992, from Laverty, 1996) by saying that under investment of long-term projects could lead to fluid capital markets. External capital suppliers will move from company to company when results are not according to their wishes. This is the case in America. Japanese and German firms do not have this fluid market problem because investments are more undertaken by banks or other firms (Laverty, 1996). Finally, stock markets ‘myopia’ is argued that firms have to maximize their stock price in order to
12 prevent a takeover. To do succeed long-term assets are sold. Selling long-term assets destroys long-run value. The stock price goes up and a takeover is prevented (Laverty, 1996).
Criticisms on the existence of economic short-termism and managerial temporal orientation explain that intertemporal choices are efficient according to competitive market conditions. Paying attention to pure financial information (Berk & DeMarzo, 2007) and stock prices of a company will be determinants for managers to make optimal investment decisions. Moreover, the market horizon is infinite and it does not matter if the firm value increases now or over 50 years (Laverty, 1996). The next section will provide the other side of the literature, where only pure financial numbers are decisive in investment projects.
Economic investment decision-making
Pure financial, the most widely used method considering a take-it-or-leave-it decision, the NPV rule can be used. This is seen as the ‘golden’ rule of financial decision-making: when making an investment decision, take the alternative with the highest NPV. Choosing this alternative is equivalent in receiving it’s NPV in cash today. Moreover, this rule states that a project needs to be accepted when the NPV is larger than zero, rejected when it is smaller than zero and indifferent when the outcome is zero. In this last situation it does not add extra value to the company. They formula of the NPV is as follows:
NPV = (initial investment) + (Future cashflows) / ((1+r)^t)
Here, the future cash flow is determined by the upcoming expected returns, the r is the
discount rate which is controlling for opportunity cost and structures the percentage that could be earned at different projects with the same amount of risk. Finally t determines the time of the cash flow.
13 Although the NPV-rule is widely accepted as a guideline to make investment
decisions, academic literature also argues that this measurement has its implications. The first implication is uncertainty. If an investment under the NPV-rule is made and irreversible, future returns are uncertain (Fisher, 1999). Uncertainty is in this case described as ‘the gap between the information currently available and the information required’ (Verbeeten, 2006, pp. 3). In order to overcome this, waiting is the best option. After waiting, for example one period, the expected return of the NPV of the investment opportunity is greater than the initial investment. Therefore, waiting for making investments can be good in times of uncertainty (Fisher, 1999). A second shortcoming of the NPV method implies only the financial aspect. Sophisticated capital budget practices define that both time and effort needs to be taken into account in order to make a deliberate choice about a potential investment (Verbeeten, 2006). In the short-run there can be a deficit of human and/or financial capital that does not allow making an investment (Verbeeten, 2006; Fama, 1977). Finally, the third implication argues that the value of an investment is given by the sum of market values of its future cash flow. As said before, the NPV model contains risk-adjusted discount rates. These rates can be, however, changing over time and not be relevant anymore. This can make a previous selected investment worthless (Fama, 1977).
Despite rational economic thinking and the implications of this theory, Green (1984) argues that this pricing model is static and there can be concluded that the model is only suggestive. Jensen & Meckling (1976) argue that individuals within the organization also would like to maximize their value. This brings us back to the explanation of managerial temporal orientation. Moreover, this orientation is next to the influence of individuals, also influenced by routines and traditions of an organization. Previous academic literature argues that budgets for investments and allocations to (new) projects are related to previous capital expenditures (Bromiley, 1986). Especially the allocation of resources. Therefore, not only
14 managerial temporal orientation is of big importance, also the firm itself determines the orientation where to go (Souder & Bromiley, 2012). As an example, a cost-based company, which is using assembly lines in order to make final products, operates in a highly
competitive market. They will be investing more likely in long-lived equipment and
strategies. The routines that are being captured by a firm’s historic temporal orientation is also of big importance in order to make strategic decisions (Souder & Bromiley, 2012). The next section will briefly explain this according to the different types of ownership.
Firm Ownership
Academic research states that different ways of structuring a company shapes the way in which a management teams make the day-to day decisions. Moreover, national business systems, level of corporate governance and the type of company owners are fundamental principles that determine the future orientation of a company (Gospel & Pendleton, 2003, Porta, Lopez-de-Silanes, Shleifer & Vishny, 2000, Shleifer & Vishny, 1999).
National business systems determine how management decisions are made. The most fundamental difference can be seen by comparing the liberal market economy, like the USA and United Kingdom, and the coordinated market economy, that can be seen in countries like Germany and Japan (Gospel & Pendleton, 2003, Porta, Lopez-de-Silanes, Shleifer & Vishny, 2000, Shleifer & Vishny, 1999). The liberal market economy is also called the
Anglo-American model. This market is characterised by a lot of minority shareholders. The
regulations are tighter and there is a dispersed ownership (Porta, Lopez-de-Silanes, Shleifer & Vishny, 2000). In times of financial difficulty, there will be savings on labour costs. By doing this, it ensures access to the capital market and remains profitable in the long run (Gospel & Pendleton, 2003). Moreover, the coordinated market economy is also seen as the
15 general, ownership is less dispersed because great blocks of shareholders dominate companies (Shleifer & Vishny, 1999). Another fundamental difference between those systems is the way that the companies handle in times of financial distress. Companies in the coordinated market economy will not reduce the labour costs, but will absorbing negative performance by
reducing payments to shareholders and remain internal consistency (Gospel & Pendleton, 2003).
Secondly, corporate governance is engaged in with the fact how a company can be structured. In this thesis, corporate governance is interpreted in a way that it ‘is concerned with who controls the firm, in whose interest the firm is governed and the various ways whereby control is exercised’ (Gospel & Pendleton, 2003).
Third, different studies in strategic management discussed that owner identity can lead to different decision–making horizons (Bruton, Filatotchev, Chahine & Wright, 2010).
However, this is under investigated in the academic literature (Aquilera & Jackson, 2010). First of all a distinction between great blocks of shareholders and many little shareholders can be made. Especially in North America, many little shareholders dominate a company.
Between the great blocks of shareholders, another distinction can be made: family-owned firms and institutional investors. Every type of ownership has its own preferred time horizon, which will be discussed later. Besides this difference, there are also some agreements. Every shareholder is concerned if the management team will use the money that they invest in a project in an efficient way (Vishny & Shleifer, 1997).
Family-owned firm are usually focused on a long-term horizon. Since they have a very large stake within the company they have more control towards the management team
(Anderson & Reeb, 2003). Shleifer & Vishny (1986) argue that family firm mostly control the firm by putting family members into the board of directors. Moreover, they are able control the day-to-day operations and have influence in the decision management process (Fama &
16 Jensen, 1983). This long-term horizon gives these firms the advantages to have greater benefit of long-term efficiency and make family owned firms better performers than non-family owned companies. This is because the company is linked towards family wealth, pride & welfare. Another explanation for this better performance can be that poor performing family businesses will exit the market by selling their shares (Anderson & Reeb, 2003). A
disadvantage of a family firm can be that the firm will be distracted of short-term
opportunities and specialists are not given a real chance of making success (Anderson & Reeb, 2003).
Other large shareholders are usually institutional investors. Hoskisson, Hitt, Johnson & Grossman (2002) made a distinction between two kinds of institutional investors: pension funds and investment funds. They argue that pension funds are more focusing on long-term horizon because those companies do not feel the pressure of getting a direct result. (Gilson & Kraakman, from Hoskisson, Hitt, Johnson & Grossman, 2002) found that pension funds will hold shares for over more than one decade. Furthermore, pension funds are not allowed to have more than a 5% interest in one company. Therefore, they have very diversified portfolios that they want to see back at the company that they invested in. On the other hand are the investment funds. These institutions are more focused on short-term horizons. Investment manager will receive a higher compensation when the net value of a company is high (Hoskisson, Hitt, Johnson & Grossman, 2002). Therefore, their salary is mostly marked-based. Both institutions have in common that they want to have a large control in order to get their interests through. Johnson & Greening (1999) disagree and state that all institutional investors have long-term horizons. The amount of money that they invest in the company is large; they do influence the stock price. Therefore, institutional investors do interest about the financial performance, but at the strategic activities as well (Johnson & Greening, 1999).
17 Firm ownership and managerial temporal orientation
Despite the differences among owners of different firms, they have propinquity as well: maximize profits of a firm (Tomson & Pedersen, 2000). As previous literature states, the temporal orientation and amount of returns among company owners are different. Therefore, it is very important for management teams to know which type of owner they are dealing with in order to make the right decisions (Gospel & Pendleton, 2003). Moreover, it is important to know how the company can be traded from a very long-term horizon oriented shareholder to a very short-term oriented shareholder. Ownership can be changed rapidly. Because the number of traded firms and the status of the capital market vary per nation, the ease of changing from owner is different per country.
An important thing to understand is how shareholders can influence the managers in order to press their objectives (Lazonick & O’Sullivan, 1997 ). This can be done in three ways. First, to be sure about investment projects, large shareholders can claim a position within the board of directors. Second, a not often used tactic to have more control about the management team is by financing a project with debt (Carr and Tomkins, 1998 ). If a project is financed with debt, the cost of capital will decrease. A reaction on this decrease is a concern about the financial health of a company. This can be a very good incentive for shareholders to have more control on the management team (Gospel & Pendleton, 2003). Third, they can also work with incentive contracts. These contracts allow owners to change the managerial temporal orientation of a CEO. In the following section, integration between firm ownership and managerial time horizon will be provided. Moreover, incentive contracts are needed to align the incentives of the owner with the management team. This is needed because almost every company in the world faces misalignment between the incentives of owners and managers. The next section will elaborate on this and also explain how an owner can influence the managerial temporal orientation.
18 Agency Theory
For managers it is difficult to determine whether they want to maximize the shareholder value and listen to the investors, or follow their own preferences. This leads to a conflicting
situation between the shareholders and management team. The agency problem is investigated a lot in the academic literature. It can be defined as: ‘one in which one or more persons (the principal(s)) engages another person (the agent) to perform some service on their behalf, which involves delegating some decision-making authority to the agent (Hill & Jones, 1992, pp. 132). Since the agency theory can be used in different settings and levels the following will be applicable for this thesis: The principle can be seen as owner and the agent is seen as manager. Shleifer & Vishny (1999) state that a questioning shareholder explains the central issue of this problem. He is investing money into the company, but is unable to see how the money will be spent. Moreover, the shareholder is afraid that the money will be invested into unprofitable projects. In order to structure this, the shareholder will make sign a contract with the manager in order to officially determine what the shareholder is able to do and more important, what he is not able to do (Shleifer & Vishny, 1999). At this point, a problem arises. A shareholder is not able to make the daily decisions within the company because he is not in the centre of the company. Therefore, he has less information and expertise than a manager (Jensen & Meckling, 1976). This is the reason why contracts are not fully closured and free interpretable for both the shareholder and the manager.
Moreover, a manager can interpret the contract in a different way and a shareholder is not sure if the manager does what he wants (Grossman & Hart, 1986). Eisenhardt (1989) agrees with this and states that this theory tries to solve two problems. First, an agency problem arises when the desired goals of the principal and the agent are not aligned. Moreover, it is very hard to see for the principle what the agent is doing and how he is behaving (Eisenhardt, 1989). This problem arises from information asymmetry, which
19 contains that the shareholder has not the same as information from the company as the
management within the company itself (Krishnaswami & Subramaniam, 1999). Therefore, investors do not have the same amount of value-relevant and firm specific information. This can lead to different priorities and incentives between the principle and the agent. The second problem that Eisenhardt (1989) gives is the different amount of risk that both the principle and agent want to take.
Incentive Contracts
In order to align these goals even more than an already existing contract, a shareholder can create incentive contracts (Shleifer & Vishny, 1999). Two different kinds of contracts can be made between the principle and agent. The first type of contract is the behaviour-oriented (Eisenhardt, 1989). This contract means that there is less control from the principle towards the agent and payments are based on salary and internal decision-making. Shleifer & Vishny (1999) argue that this is a good way of winning trust between the shareholder and the agent. When a shareholder is constantly controlling the manager, this can be threatening and make the distance between them even bigger. Bebchuck & Fried (2003) disagree with these types of contract because the manager may use his private interests in a variety of ways. Moreover, management will start gaining control over key projects and make the company very
hierarchical and will close the door for investors who wants to share their thoughts (Bebchuk & Fried, 2003). Information asymmetry will grow. Secondly, they also argue that behaviour oriented contracts will lead to self-entrenchment or failing to distribute cash when there is no investment opportunity for the company (Bebchuk & Fried, 2003).
The second kind of contract that can be created is a more controlled one, the outcome-oriented contract. This kind of contract is based on the financial performance of the company. If the company performs in a way that the principle want the management team will be
20 rewarded with executive payments like bonuses and company shares (Eisenhardt, 1989). In contrast, Gospel & Pendleton (2003) disagree with this theory. Although they see they see that a manager has the control over the daily strategic choices and has more information than the shareholder it argues that the agency theory places the shareholder-manager relationship in a wrong context. Moreover, it ensures that other actors are excluded and the diversity of interest is only seen negatively instead of positively (Gospel & Pendleton, 2003).
Framework of influencing the management team
The final framework provides a model, which explains six ways of influencing the management decision-making process:
1. Management gives proportional support to both labor and capital. 2. Time-frame of managerial decision-making.
3. Defining the original business strategy. 4. Keeping the financial impact into account.
5. Pressure management to secure their commitment. 6. Indicate the importance of cooperation with other firms.
This model is created by Gospel & Pendleton (2003), to highlight the main ways of
influencing the management system. These ways only describe the best way to overcome all the problems that are described in the section above. The first way describes the importance to indicate the different business systems in the world. The Anglo-Saxon model in the United Stated of America and the United Kingdom is focused on shareholder value (Aguilera & Jackson, 2003). Because ownership in this system is dispersed, shareholders have control by exiting the company. Management is afraid that a change in shareholders will change the board of directors and management is replaced (Gospel & Pendleton, 2003). The focus on
21 shareholder value will lead to a loss of labor and less commitment from within the
organization (Gospel & Pendleton, 2003). Moreover, the collaborative model is much more concerned about employees and long-term relationships and is therefore much more
stakeholder-oriented (Porta, Lopez-de-Silanes, Shleifer & Vishny, 2000). Therefore, the business system where the company is operating in is of big importance.
Secondly, the time frame of decision-making underlines the importance of shareholder recognition from the manager. As described in the sections above, there are different types of shareholder, which all have there own preferences. For a manager, it is important to know who are the shareholders they are dealing with.
Third, defining the original business strategy is of big importance. Carr & Tomkins (1998) argue that the different business systems determine the focus of a company.
Organizations from the market-outsider system are less focused on large financial objectives (e.g. market share and/or long-term investment projects). Companies from the collaborative model are focused on long-term competitive advantages and long-term value. For a
management team this is crucial to know from the shareholder in order to adjust the business strategy and make the correct decisions (Gospel & Pendleton, 2003).
Fourth, the financial performance of a company should be aligned with the
shareholder expectation. Especially in the Anglo-Saxon model, where ownership is dispersed and negative performance can make the variation of shareholders change. This change can make the actual position of board members uncertain. Therefore, it is important for managers to keep an eye on the financial impact on the organization.
Fifth, shareholders via incentive contracts can pressure the management. Internal incentive contracts are based payments from the shareholder towards the management team as described above. Bonuses, executive payments and stock options are examples of changing the decision-making process of the manager (Eisenhardt, 1989). Dechow & Sloan (1991)
22 agrees that these kinds of executive payments will encourage management to focus on the shareholder incentives. Gospel & Pendleton (2003) state that the Anglo-Saxon model has larger bonus systems, and the collaborative model has significant smaller bonus systems. Finally, for managers it is very important to work together with other companies. This can lead to a decrease in total costs, which assures the job security of employees. This can be seen as a long-term horizon focus.
In summary, the literature states that there are different ways of influencing the management-decision making process by shareholders. The reason why shareholders want to have more control comes from a variety of ways. The final framework presented that there are main ways of influencing the management decision-making process. Gospel & Pendleton (2003) argue that a balance between control and trust needs to be found. Too much control from shareholders leads to suspicion from the managers towards to shareholder. Despite the different ways of influencing, this research will strongly focus on the second and fifth aspect of this final framework. To what extent can firm owners change managerial temporal
orientation? And what is the role of (incentive) contracts? The next section will provide information about all hypothesizes that is tested.
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3. Conceptual Framework
The literature described and explored earlier research. In this section, the conceptual
framework will be presented. This framework will present the findings on which this research is based. First, the different types of shareholders are discussed. Secondly, the expectations from different business systems will be stated. Finally, the incentive contracts towards managers are discussed.
Different types of shareholders
As the literature described, there are many different shareholders. “While most studies focus on the static comparison of concentrated and dispersed ownership patterns, less attention has been given to the fact that various investors (e.g., banks, pension funds, individuals, insurance companies, hedge funds, private equity, etc.) possess different identities, interests, time
horizons, and strategies." (Aquilera & Jackson, 2010: p. 523). Different studies in strategic management discussed that owner identity can lead to different decision –making horizons (Bruton, Filatotchev, Chahine & Wright, 2010). First of all, a distinction can be made
between dispersed ownership and large blocks of shareholders. Secondly, the large blocks of shareholders can be divided into two different types: the (1) family-owned shareholder and (2) institutional shareholders (investment funds and pension funds). Both have different incentives of being a shareholder. Family-owned firms are focused on the long-term horizon because they have a large stake in the company. Besides the amount of risk they put in the company it is about wealth, pride & welfare (Anderson & Reeb, 2003). Therefore the first proposition is stated as follows:
24 Secondly, there are two kind of institutional owners. (1) Pension funds are more focused on the long-term horizon because there is no direct pressure to get results. Pension funds are having very diversified portfolio’s because they are not allowed to have more than 5% interest in one company (Gilson & Kraakman, from Hoskisson, Hitt, Johnson &
Grossman, 2002). (2) Investment funds are the other part of institutional ownership. Those shareholders seem to be focused on short-term results. In order to do this, salaries from managers are mainly based on the net value of a company high (Hoskisson, Hitt, Johnson & Grossman, 2002). A reason why investment funds want short-term results is because their
salary is marked based. If the results from a company are bad, they will earn a lot less money. Although investment funds and pension have different strategies to make an
investment decision, other academic literature states that all institutional owners have the same temporal orientation. Institutional owners prefer R&D investments and are therefore committing to long-term strategies of the company (Urseem, 1996, David, Hitt & Gimeno (2001). Furthermore, empirical literature shows that the intensity rate of R&D should be taken into account (Bushee, 1998). Institutional investment owners change their incentive from short-term temporal orientation towards a long-term orientation (Porter, 1992; from Bushee, 1998). This can be derived from the fact that shareholders with large concentrations of shares carry more risk and have more at stake than dispersed shareholders (Schipper, 1989). These kinds of investments result in a longer time frame which institutional investors favour. This can lead to conflicting situations from (short-term) goals of the management team. Moreover, from a political perspective, institutional owners have an increasingly legal obligation to maximize return to their stakeholders (Useem, 1996). Overall, there can be stated that:
H2: When the largest shareholder within a company is institutional, they are more focused on long-term temporal orientation
25 Finally, the minor shareholders are indifferent towards a company horizon. Their amount of risk that is invested is so small, and their influence towards the management is minimal that they are indifferent towards a company managerial temporal orientation. Moreover, if they do not agree with the business that is going on they will sell the shares and find another suitable company to invest their money in (Gospel & Pendleton, 2003).
Business systems around the world
As earlier literature described, there are different business systems through out the world. In general, a distinction can be made between the American Anglo-Saxon model and the German/Japan collaborative model (Gospel & Pendleton, 2003). A first major difference between those systems is the type of ownership. The Anglo-Saxon model has dispersed ownership with many minor shareholders, where the collaborative model is facing large blocks of shareholders. Previous research argues that richer and more developed countries have more concentrated ownership (La Porta, Lopez-de-Silanes & Shleifer, 1999). Moreover, current academic literature is dispersed about the influence that concentrated ownership wants to have. Berle & Means (from La Porta, Lopez-de-Silanes & Shleifer, 1999) find that
managers are unaccountable and think that shareholder should have a major influence on the management team in order to keep a company profitable.
Another reason why large concentrated owners want to influence the management decision-making process is because the amount of risk they invested into the company (Lavarty, 1996). On the other hand, there is academic literature that states that large corporations have large shareholders. These shareholders take care of active corporate governance systems and take care of the stakeholder as a whole (La Porta, Lopez-de-Silanes & Shleifer, 1999). The research area is not clear into finding consistent results. The reason for
26 this is because little research is systematically done about this subject. There are no clear ownership patterns from large corporations are whatsoever. For that reason the next hypothesis in this thesis is stated as followed:
H3: Larger concentration of shares positively moderates the relationship between family-firms and long-term temporal orientation
As mentioned in the literature review, Denis & McConnell (2003) investigated the different international possibilities of corporate governance mechanisms. Strong corporate governance mechanisms take care of an alignment between managers and shareholders (Denis & McConnell, 2003). Some examples that should regulate this mechanism are controlling the board of directors or institutional investors in order to increase organizational performance. (Larcker, Richardson & Tuna, 2007). For this research it is very important to see whether corporate governance does influence the managerial temporal orientation because the
literature describes that the managerial temporal orientation is better controlled and the needs between company owners and managers are better aligned. However, empirical research shows results in the opposite direction (Larcker, Richardson & Tuna, 2007).
Based on these outcomes, the following hypothesis can be stated:
H4: Corporate governance positively moderate the relationship between ownership and long-term temporal orientation
27 Incentive contracts and managerial temporal orientation
Lavarty (1996) argues that firms from the United States of America are losing the competition from companies overseas. This losing competition comes from the unwillingness to invest into crucial projects. Moreover, Lavarty (1996) explains that this happens in the United States of America because of the different business systems. The Anglo-Saxon business system fails to make long-term investments that won’t payoff immediately. This leads to economic short-termism. From existing literature, this can lead to managerial opportunism (Lavarty, 1996). This is a situation where managers will act towards their own interest. Narayanan (from Lavarty, 1996). Explains that managers will invest into projects that have a short payoff horizon. This is ideal because a manager will be judged based on the years that he was in charge. Since the average working years, as a CEO is around four years, short-term results are needed (Dechow & Sloan, 1991). Whenever a shareholder has different incentives, they should be aligned. This can be done via incentive contracts. Examples of incentive contracts are bonus programs, stock options or share ownership (Shleifer & Vishny, 1997). These incentives should lead to an alignment of incentives. However, when managers are given the possibility of receiving bonuses or stock options from the shareholder when targets are met, it will give the manager an extra incentive to take excessive risks (Frydman & Saks, 2010; Denis, Hanouna & Sarin, 2006). This will lead to an increase of short-term oriented
managerial temporal orientation and fraudulent activities in order to manipulate the value of the company. Therefore, the last hypothesis is stated as follows:
H5A: Bonus plans from the CEO will lead to a short-term temporal orientation.
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4. Research design
The above paragraph discussed existing literature and information about the problem. This section describes which methods will be used to test the research problem and the
propositions. To analyze data, it should be created first. This work elaborates how the sample is drawn, which methods are used for the analysis and why. Finally it will state the dis-(advantages) of each method.
Research design
For this research, documentary secondary data has been used. This method is often used for projects where also primary data is involved. However, it can also be used as standalone with other sources of secondary data (Saunders, Lewis & Thornhill, p. 258, 2009). Advantages of documentary secondary data are that it is an enormous saving in resources. Especially in saving time and money (Saunders, Lewis & Thornhill, p. 268, 2009). Because the data is already available, more time can be sent on the analysis. Moreover, it is possible to use large data sets. A last advantage that is stated by Saunders, Lewis & Thornhill (p. 269, 2009) is that re-analyzing the data can lead to unforeseen or unexpected discoveries, which can be
resolved. On the other hand, secondary data has disadvantages as well. The data that is used can be collected for a complete different purpose that does not match your needs (Saunders, Lewis & Thornhill, p. 268, 2009). A second disadvantage can be that access to a database can be difficult or costly. For this research, this is not considered as a problem because the
supervisor gave the access.
Sample
29 in business life, the sample is drawn from two databases that are provided by the supervisor and have information about the same 700 companies. The first database from Thompson gave access to the written quarterly results of the 700 companies in 2006. The second database was distributed by the supervisor and gave all the relevant information about the 700 companies. The appendix will provide all the information from the database. In order to get a reliable sample to draw generalizable results, it is important to have a sample that is large enough. (Saunders, Lewis & Thornhill, p. 373, 2009). Moreover, this thesis will be researched in a variation of ways. It will consist of an exploratory, archival and quantitative study. Since this thesis is concerned about short-termism, a lot of literature needed to be read in order to see which method of quantifying this variable.
It is very important to collect enough data (Saunders, Lewis & Thornhill, p. 219, 2009). Only then it is possible to prove statistically that the propositions and hypothesis that are made are tested sufficiently. Drawbacks of this large sample could be budget constraints, time constraints or needing results quickly (Saunders, Lewis & Thornhill, p. 212, 2009).
Data Collection
This research ended up in an article from DesJardine & Bansal (2015) to measure short-termism. From the Thomson database, written quarterly reports were drawn. From the original 726 companies, only 299 are used because from the other companies no information was available. Companies from different countries and industries are used for this thesis. These reports were used to measure the managerial temporal orientation of a company with the measures as DesJardine & Bansal (2015). Therefore, linguistic analysis of textual archival data is used. This is positive because speeches have a underlying meaning of context and artifacts. These words can be quantified (DesJardine & Bansal, 2015). To quantify the independent variable, short-termism, a content analysis of CEO conference calls will be
30 executed. A content analysis is useful the researcher to have further understanding of the data (Elo & Kyngas, 2008). A disadvantage of a content analysis is that it is seen as a simplistic technique that does not lend itself for complicated statistical analysis. Despite this criticism, it explains attitudes, values and intentions from individuals or groups very well. Therefore, it provides answers on a large scale of different business related problems, like managerial short-termism (Elo & Kyngas, 2008). The CEO conference call transcripts are stored in the Thompson Database. The supervisor gives access to this database. If there is not a significant number of CEO conference calls available, a content analysis from chairman letters of the Fortune 500 companies will be used as back up plan. The analysis will give the necessary information whether a company is focused on the short-term horizon or not, based on the method from DesJardine and Bansal (2015). The transcripts are analyzed with Atlas IT via the following steps:
1. Creating a comprehensive dictionary of keywords. 2. Categorizing keywords into short and long term. 3. Validating the keywords in the context.
4. Computing organizational managerial temporal orientation.
5. Validating the measure by reading transcripts and rank them in order to see whether the findings are consistent with the ratio founded in step four (DesJardine & Bansal, 2015).
Due to time limit, the same dictionary of keywords is used in order to measure short-termism. The complete list of words that is used can be found in the appendix. Moreover, to measure the managerial temporal orientation of a company the following formula is used:
long-31 term words)
Measures
The dependent variables will be measured via an archival database. The supervisor will provide this secondary data. This database includes company related information from 726 companies out of 2006. Also called, cross-sectional data. For that reason, archival research is used as well. A disadvantage of using archival research is that the data is not built up by you and could have the wrong information. This can lead to a misunderstanding of the data (Eilifsen & Messier, 2000). However, archival research has the advantage that is has a lot of information and therefore the sample size is useful (Eilifsen & Messier, 2000). Because this database consists data from 2006, the transcripts that are found in the Thompson Database are also from this year. One of the independent variables that is tested in this thesis is
‘Concentration of shares’. This variable is given by the database and can be used right away. The second hypothesis will be measure the income of the CEO. This is also an
independent variable and will be measured by the information from Forture 500 companies out of 2006 as well. A good variable from the database is the ‘Variable income’ from the CEO compensation. Moreover, combining the ‘Fixed income’ and ‘Variable income’
variables from the CEO compensation lead to the creation of a dummy variable. This dummy will be used to test the income of CEO on the relationship of managerial temporal orientation. After creating the independent and dependent variables, a quantitative research will be
conducted via SPSS. A big advantage for quantitative research is that it provides significant answers that are conclusive and shows patterns in data (Larsson, 1993).
32 Family Firms
From the database that is provided by the supervisor, there is a dummy variable created whether the firm is a family firm or not. All the companies that contain this variable will be measured to see whether the managerial temporal orientation can be determined by this factor. Moreover, dummy variables like ‘Family member is board member’ and ‘CEO is family member’ can be added to the first model to test the hypothesis.
Institutional Shareholders
The database also contains information about the institutional shareholder. Dummy variables are created to see whether the largest or second shareholder is institutional. Therefore, these two dummy variables will be used to test whether the origin of institutional shareholders determines the managerial temporal orientation of a company. Because the literature states that institutional shareholders are mainly focused on the long-term horizon when they invest into R&D expenditures, the variable ‘R&D expenditures 2006’ will be added to the model. This variable is included in the database provided by the supervisor. Companies that did not have expenditures on research and development will be excluded from the research.
Concentration of Shares
From the literature, there is stated that the number of shares are of big importance when determining the managerial temporal orientation of a company. In order to measure this, the variable ‘number of shares from largest firm’ will be added to the previous two models to see whether this number of shares moderates the relationship between the owner of the firm and the managerial temporal orientation of a company.
33 Corporate Governance Systems
Since times are changing, corporate governance systems are rising within the corporate world. More and more companies are introducing corporate governance systems within their
company. These systems should improve the shareholder protection and reduce the managerial short-termism. In order to measure whether corporate governance systems moderates the relationship between shareholder and organization managerial temporal
orientation, two variables will be used. The first measure is from the database that is provided by the supervisor; ‘Corporate Governance Committee available’. Moreover, every company has its own corporate governance score (La Porta, Lopez-de-Silanes, Shleifer and Vishny, 1998). These scores are added to the existing database. The higher the score is, the higher the legal shareholder protection via corporate governance systems.
Incentive contracts
From the literature there can be stated the incentive contracts for the CEO and management team will lead to a more short-term focus and therefore managerial temporal orientation. In order to measure this, the variable ‘Variable income’ will be used as the bonus that is given to the CEO. There is expected that the variable income influences the managerial temporal orientation of a company in a negative way. Moreover, the stock options that is given to a CEO will have the same outcome as the bonus that is distributed, except for the money that will stay in the company itself. In order to measure the number of stocks the variable ‘Number of stocks’ will be used.
Control Variables
Because the complete list of companies consists of different kind of company sizes, industry differences etcetera, control variables are very important in order to draw consistent answers
34 and results. In this research, the control variables are ‘Industry’, ‘Country, ‘Numbers of employees 2006’ and ‘CEO age 2006’. These variables are used because previous
investigations about managerial temporal orientation used the same measures (David, Hitt & Gimeno, 2001; Urseem, 1996). Industry is used because companies have different time horizons per industry. Therefore, it is good to split them up (Urseem, 1996). Country is used because the complete database contained more than 17 countries. In order to reduce this number, they are divided into 4 origin groups. (a) ‘Enlish-origin countries’ (b) ‘French-origin countries’ (c) ‘German-origin countries’ (d) ‘Scandinavian origin countries. La Porta, Lopez-de-Silanes, Shleifer and Vishny (1998) created this list of 4 different countries that have a lot of similarities. These will be used because the number of control variables (17) will be extreme. Number of employees is used to control for firm size. Controlling for this ruled out any concerns regarding a firm’s stability. When firms have different financial stability, their managerial temporal orientation may be different (DesJardine & Bansal, 2015). CEO age is used to control for the managerial temporal orientation because older people tend to have a long individual temporal orientation. Moreover, they could be using different kind of words instead of young executives (DesJardine & Bansal, 2015).
5. Results
In this section the results and outcomes of the analysis will be presented. Answers on the earlier made hypothesis will be provided. The structure of the section will be as followed: first of all, some descriptive statistics about the sample and data will be given. Secondly, the correlation will be tested. Third, the regression analysis is presented and the results of the hypothesis will be given.
35 5.1.1 Descriptive Statistics
Before all the hypothesis will be answered it is necessary to specify the complete sample that is used for this analysis. The complete dataset provided information of 726 companies. Because the quarterly results of 2006 could only be extracted for 299 companies, the rest will be excluded from the dataset. Therefore, the complete dataset consisted of 299 companies. From this data, 45 companies were indicated as a family firm and 23 as an institutional shareholder. 191 companies were no family firm nor a institutional owner. For 40 companies it was unknown about their ownership status. Moreover, the data for the percentage of shares if available for 274 companies. 57 Companies have a corporate governance committee available and information about bonuses in terms of money is available at 218 companies. In terms of shares, the information is available for 216 companies. All the descriptive
information can be found in table 1.
The descriptive show that all the variables are not normally distributed. This can have two reasons. First, a lack of symmetry (skewness) means that the scores are not evenly distributed but rather at the end or begin of the scale (Field, 2009). In this case, all the variables are
36 positively skewed, except for the French-origin countries. This means that there is a positive skewness. Moreover, a second reason could be the pointyness (kurtosis) of the sample. When scores cluster at the end of a distribution, there is kurtosis. These variables show a positive kurtosis (leptokurtic) which means that points cluster at the end (Field, 2009). In order to have a normally distributed sample, there should not be skewness or kurtosis. This is seen as a flaw in the sample. Because it is very important to have a dependent variable that is normally distributed the variable ‘Managerial temporal orientation’ is transformed.
5.1.2 Transformation of variables
After consulting the supervisor there is determined that it is important to adjust the dependent variable only. Therefore, a transformation of the variable was done with logarithm X* = Log10(X). After this transformation, the skewness is reduced to .888, which is moderately positive (Field, 2009). The other variables will remain the same and the new managerial temporal orientation variable will be used for further analysis.
5.2 Correlations
Before hypothesizes are tested, some correlations are explored. All correlations can be found in table 2. A first look at the results shows that managerial temporal orientation only
correlates with the French-origin (r=0.20) and Scandinavian-origin (r=-0.19) countries. Remarkable is the different direction of the correlation. In France, the managerial temporal orientation is increasing when the number of family firms is growing. Scandinavian countries show the opposite result. For family firms, we see a significant correlation with the number of shares (r=0.27). Another expected result is between the amount of variable compensation for the CEO and the number of employees (firm size) (r=0.21) and the number of stocks and employees (r=0.22). This can be interpreted as followed: when the company is growing
37 larger, the compensation for the CEO is becoming bigger. This can be explained because the risks and amount of responsibility for the CEO is becoming larger. No correlations where found between family firms and managerial temporal orientation and when the largest shareholder is institutional and managerial temporal orientation.
5.3 Regression
In order to test hypothesizes; this section will provide information about the regression analysis that has been conducted. This method is able to describe if there is a relationship between the variables that are measured. The first hypothesis that is tested is the positive relation between family firms and managerial temporal orientation. The previous section described that no correlation can be found between these variables. Linear regression was performed to investigate the ability of family firms to predict levels of managerial temporal orientation, after controlling for number of employees, CEO age, country and industry. In the first linear regression model, 4 predictors were used. This model was statistically significant F (10, 264) = 4.637; p < .05 and explained 38.7 % of variance in managerial temporal
orientation. After entry of family firm at the second model the total variance explained by the model as a whole was 38.7% F (1, 263) = 4.211; p < .001. The introduction of family firm explained not any significant additional variance in managerial temporal orientation; p > .001. Therefore, the first hypothesis is not supported.
39
40 The second hypothesis measured the positive relationship between institutional ownership and managerial temporal orientation. Since the correlation in the previous section did not show a significant result, a hierarchical regression analysis is conducted to provide a final answer. Like the first hypothesis, the controlling variables are number of employees, CEO age, country of origin and industry. Again, the first model is tested significant. However, the second step when institutional ownership is added becomes non-significant; p > 0.05. The increase in variance explanation is not growing at all (R=0.392). In this second regression analysis, the controlling variables Scandinavian-origin countries and other industry are excluded due to multicollinearity issues. This means that they are highly correlated and influences the calculations of individual predictors (Field, 2009). Moreover, there can be stated that the second hypothesis is not supported.
The third hypothesis in this research is analyzing the relationship between family firms and managerial temporal orientation with number of shares as moderating factor. Because the previous section showed no correlation or significant regression analysis it will be hard to find significant results for this analysis. First of all, a new interaction variable is created (Family firm x Number of shares). After controlling for the standard control variables the results are showed in table 3. The regression analysis of the moderator shows a significant result, however, the power of the model is in both cases reducing. The moderator (Family Firm x % of Shares) shows that the F (1, 235) = 4.280; p < .05, which is a non-significant change to the regression analysis.
According to the fourth hypothesis the same results are visible. Again all the results are significant when an interaction variable is created between Family Firm and Corporate Governance Committee and between Institutional Ownership and Corporate Governance Committee. In the first case, the model is tested significant F (1, 263) = 4.205; p < .05 but also with a weaker F-score (original F-score: 4.637). The second case with the interaction
41 variable of institutional ownership showed the same results: F (1, 252) = 4.299; p < .05 and a weaker F-score (see table 6).
The last two hypothesizes state that incentive contracts lead to a more short-term managerial temporal orientation. Correlation shows that a significant result is found between the firm size (number of employees) and the bonus incentives. The bigger the firm, the higher the financial compensation. After conducting two hierarchical regression analysis the results are as followed. Both models show a significant model when there is only controlled for the variables CEO age, number of employees, country and industry. However, no significant results were found after both models got the variables ‘variable income’ or ‘number of shares CEO’ added to the first model. Hypothesis 4 was conducted to explain the relationship between the variable income of the CEO and the negative effect on managerial temporal orientation. Regression analysis showed a non-significant result F (1, 204) = .020; p > .001 (see table 7). Therefore, the fourth hypothesis is also not supported. The fifth hypothesis was created to see whether the number of shares of a CEO negatively influences the relationship on managerial temporal orientation. The regression analysis here showed that the explained variance was increased by 0.4% and tested non-significant F (1, 198) = .925; p > .001 (see table 8). The fifth hypothesis is therefore, like all the other hypothesizes rejected.
5.4 Alternative methods to measure managerial temporal orientation
Because all hypothesizes are rejected, there is investigated whether the dependent variable is not measured in a correct way. Therefore, multiple measures are tested to see if there will be different results when the dependent variable is changed. Currently, the dependent variable is measured as followed:
Managerial Temporal Orientation = (# of long-term words) / (# of long term and short term words)
42 This measure is conducted from DesJardine & Bansal (2015) in order to measure the
managerial temporal orientation of a company. The numbers of long-term words for this researched are derived from written quarterly results and consist of a presentation part and a question and answer part. To see whether there are differences between the presentation part and the question and answer part both sections are calculated separately:
1. Managerial Temporal Orientation = (# of long-term words presentation) / (# of long- and short-term words presentation)
2. Managerial Temporal Orientation = (# of long-term words question & answers) / (# of long- and short-term words question and answers)
3. Managerial Temporal Orientation = (# of long-term words) / (# of total characters presentation + question and answers)
4. Managerial Temporal Orientation = % of research and development according to sales 2006.
All alternative measures did not have any significant correlation with one of the variables family firm, institutional ownership, variable income or number of shares. The numbers of short-term and long-term words do have a significant correlation with each other. In order to see why the results are different from the literature, the discussion section will provide more information.
Table 9 Means, Standard Deviatons, Correlations
Variables M SD 1 2 3 4 5 6 7 8 9
1. Long-term words presentation 26.73 20.42 -2. Short-term words presentation 168.97 113.24 0.54** -3. Time horizon presentation 0.15 0.08 0.38** -0.37** -4. Long-term words Q&A 21.01 15.63 0.51** 0.36** 0.08 -5. Short-term words Q&A 116.58 84.75 0.28** 0.50** -0.24** 0.68** -6. Time horizon Q&A 0.16 0.1 0.15** -0.18** 0.40** 0.26** -0.31** -7. Time horizon words 0.00 0.00 0.45** -0.08 0.68** 0.30** -0.17** 0.57** -8. Time horizon log 0.06 0.02 0.33** -0.36** 0.89** 0.21** -0.30** 0.71** 0.76** -9. R&D comparing to Sales 2006 393.73 834.58 0.16* 0.06 0.11 0.21* 0.26** -0.03 0.04 0.06 -*. Correlation is significant at the 0.05 level (2-tailed)
43
6. Discussion
This section will discuss the findings from the previous section. All hypothesis are not supported and are therefore not in line with previous literature. Moreover, theoretical implications and questions for future research will be discussed.
6.1 Summary of results
All the data is derived from 2 different databases. The Thompson database is used to extract the typed quarterly results from 2006. After extracting this information, a linguistic analysis was conducted to count the number of long term and short-term words. In the end, managerial temporal orientation was measured by dividing the number of long-term words by the
cumulative amount of long term and short-term words (DesJardine & Bansal, 2015). The second database was used to extract extra information about the companies, like the type of company, amount of sales, etcetera. The complete list of variables can be found in the appendix. The supervisor provides access to both databases.
In short, five hypothesizes are tested. These are stated as followed:
1. Managers of family-owned firms have a more long-term temporal orientation
2. When the largest shareholder is institutional, managers are more focused on the long-term temporal orientation.
3. Larger concentration of shares positively moderates the relationship between family-owned firms and long-term temporal orientation.
4. Corporate governance positively moderates the relationship between ownership and the long-term temporal orientation.
