The Economic Significance of Long‐Term Plans

The authors summarize the findings of their event study of the capital market reactions to an inaugural set of 17 CEO presentations of their ‘long‐term plans’ to institutional investors. The findings show that, although sell‐side analysts appear unresponsive to such plans, both trading volumes and stock prices exhibit significant abnormal reactions to the presentations, providing suggestive evidence that the communication of such plans conveys ‘value‐relevant’ information to investors with longer time horizons. Although based on an admittedly small sample, these findings shed light on the promise of long‐term plans and have been corroborated by analysis of the market response to the presentations of 10 more companies since the study was conducted. The authors also provide the outlines of a ‘content framework’ designed to help companies put together effective corporate plans and other long‐term disclosures. The framework is organized around nine main ‘themes,’ including policies governing capital allocation, corporate governance, and human capital development, as well as the statement of corporate purpose. After applying this framework to the 17 CEO presentations, the authors find that the more specific and forward‐looking the information disclosed in these long‐term plans, the more positive the capital market reaction.