The Theory and Practice of Myopic Management

This article reviews the theory and empirical evidence of myopic management as it pertains to marketing practice. It documents empirically the stock market's inability to properly value marketing and innovation activity in the face of the potential for myopic management. The author assesses the total financial consequences of myopic management (the practice of cutting marketing and research-and-development spending to inflate earnings) and finds that myopia has a long-term net negative impact on firm value. Myopic management is contrasted with accounting accruals-based earnings inflation, and the author shows that the real activities (i.e., myopic management), and not the accounting numbers manipulation, have the greater negative impact on future financial performance. These results are consistent across alternative abnormal return measures and alternative benchmarks. The author argues that shareholders, managers, and marketing researchers can play a role in limiting myopic management practices.