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Is It Time to Get Rid of Earnings-per-Share (EPS)?

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  • Heitor Almeida

Abstract

This paper discusses recent empirical evidence showing that the presence of earnings-per-share (EPS) targets is associated with short-termist behavior. EPS targets affect stock repurchases, R&D investments, capital expenditures, employment, and the structure of M&A deals. The practice of chasing EPS with changes in real investments appears to lead to long-term underperformance and can significantly affect economic growth and welfare. This discussion suggests that analysts, investors, and companies should stop focusing on EPS as a measure of performance. I also discuss how to break the link between performance targets and short-termism.Received June 20, 2018; editorial decision October 29, 2018 by Editor Andrew Ellul

Suggested Citation

  • Heitor Almeida, 2019. "Is It Time to Get Rid of Earnings-per-Share (EPS)?," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 8(1), pages 174-206.
    • Handle: RePEc:oup:rcorpf:v:8:y:2019:i:1:p:174-206.
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    File URL: http://hdl.handle.net/10.1093/rcfs/cfy010
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    Cited by:

    1. Li, Junbao & Shi, Zhanzhong & He, Chengying & Lv, Chengshuang, 2023. "Peer effects on corporate R&D investment policies: A spatial panel model approach," Journal of Business Research, Elsevier, vol. 158(C).
    2. Uz Zaman, Qamar & Ehsan, Sadaf & Hassan, Mohammad Kabir & Javed, Muzhar & Ul Hassan, Syed Iftikhar, 2022. "Corporate Social Responsibility and Zero Leverage," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 56(1), pages 33-46.
    3. Yuan‐Teng Hsu & Chia‐Wei Huang, 2020. "Why do stock repurchases change over time?," European Financial Management, European Financial Management Association, vol. 26(4), pages 938-957, September.
    4. Drobetz, W. & Momtaz, Paul P., 2020. "Antitakeover Provisions and Firm Value: New Evidence from the M&A Market," Journal of Corporate Finance, Elsevier, vol. 62(C).
    5. Palas, Rimona & Solomon, Dov & Gafni, Dalit & Baum, Ido, 2023. "Does wedge size matter? Financial reporting quality and effective regulation of dual-class firms," Finance Research Letters, Elsevier, vol. 54(C).
    6. Driss, Hamdi & Drobetz, Wolfgang & El Ghoul, Sadok & Guedhami, Omrane, 2021. "Institutional investment horizons, corporate governance, and credit ratings: International evidence," Journal of Corporate Finance, Elsevier, vol. 67(C).

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