How Do Short-Term Incentives Affect Long-Term Productivity?

Heitor Almeida; Nuri Ersahin; Vyacheslav Fos; Rustom M. Irani; Mathias Kronlund

doi:10.1093/rfs/hhae064

How Do Short-Term Incentives Affect Long-Term Productivity?

Heitor Almeida^1,2; Nuri Ersahin³; Vyacheslav Fos^4,5,6,2; Rustom M. Irani^1,5; Mathias Kronlund¹

¹ University of Illinois at Urbana–Champaign · ² NBER · ³ Southern Methodist University · ⁴ Boston College · ⁵ CEPR , · ⁶ ECGI ,

Review of Financial Studies 2026

Abstract Previous research shows that incentives to meet short-term earnings targets can cause firms to increase share buybacks, leading to cuts in investments and employment. Using plant-level census data, we find that incentives to engage in earnings-per-share-motivated buybacks result in lower productivity at both the plant and firm level. We attribute this productivity drop to two mechanisms: reduced investment in productivity-augmenting technology, and inefficient allocation of resources across a firm’s plants. We identify multiple frictions—including labor unions, financial constraints, agency problems, and adjustment costs—that can constrain efficient reallocations across plants and thus exacerbate the consequences of firms’ short-term incentives.

DOI: 10.1093/rfs/hhae064
Volume: 39 (1)
Pages: 114-157
Language: en
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