THANH SON, LUONG
Student ID: 116181927
MDC individual assignment
Short-termism

Introduction
Short-termism or ‘myopia’ has long been a matter of great controversy. The effects led by this dysfunctional behavior are perceived negatively across all sectors of the economy. This report is going to define and analyze the problem in both theory and real world by the example of Lehman Brothers. Recommendations are also made to mitigate the issue.
Overview of the issue
In order to last, there is a need for firms to take appropriate actions to secure long-term sustainability. However, the short-term outcomes must not be precluded from consideration, if the firms at least want to survive. Therefore, both long-term and short-term goals need to be equally considered. The most important point is whether the firm can maintain the balance between long-term and short-term. The problem, so called ‘short-termism’ or ‘myopia’, arises when an organization acts in favor of short-term targets at the expense of the long-term (Marginson and Mcaulay, 2008).
There are a number of reasons for the occurrence of short-termism. The first reason which causes the issue here is the frequency of financial reporting. More frequent financial reporting is considered as a solution for a more accountable and transparent accounting system. However, this solution leads to another problem for managerial accounting because it pressures companies’ executives to focus more on short-term results, which promotes short-termism (Gigler, Kanodia, Sapra and Venugopalan, 2014). Investors and shareholders are the other reason for the problem. This is because impatient traders only evaluate a firm based on short-term capital gains and hence, demand quick returns. This induces managers to myopically make up the earnings in to provide investor ‘favorable numbers’ (Patelli, 2012). The last possible reason is