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Short-termism can be defined as the practice whereby managers or investors in an economy focus on investing their funds in highly liquid assets within the shortest time possible in expectations for higher gains. The aim is to priorities the value of their shareholders’ wealth in the short term against the going concern concept of an entity that assumes that a business will continue to operate indefinitely into the future profitably. Myopic management behavior is a technique used by managers to manipulate company’s stock and other investment projects to increase its shareholders value in short term.
Seeking instantaneous high returns devoid the need to account for the future performance of the company being taken into consideration may have deleterious implications on the organization. Some of the effects include under-performance for long-term investors, and the business as a whole. Pressure arising from the need to meet the quarterly targets can cause managers to develop myopic behavior. The prospect would be to help them meet the required performance successfully by investing less in research and development programs that are strategic for the survival of any company in the global market. Instead of investing the long-term sustainability of the economy, quarterly reporting can cause myopic behavior among managers to engage in near future investment strategies that have less concern for future growth and development. The consequences of engaging in myopic behavior to invest in short-term projects include financial instability of the companies.
The main reason why the Kenyan retail industry is on the verge of collapse is the myopic behaviour among the executives. In most cases, managers of the leading retailers such as Uchumi, Ukwala, Nakummat and Tuskys have been accused of spearheading huge expansion strategies that need huge capital investment. The implementation is such programs can only leave a company struggling to finance its current operations which automatically leads to liquidity problem.
The former giant retail firm in Kenya and East Africa, Nakummat Holdings, is one of the firms that myopic and short-termism behavior among managers led to its collapse. The managers announced over ambitious plans of opening more than five branches in 17 months. Such plans are short sighted because the mangers are struggling to show case of their performance when in real sense the company operations will be stalled due to lack of funds to fund current operations. This was the case that led to the collapse of Nakummat Holdings.