Importance of the market value of the shares to the firm: The performance and the management of the company are sensitive to the share price to the extent of the shareholder’s view. A large amount of shares quoted in the British companies are held by different financial institutions in which there is an increase of the insurance companies. In addition to this, the shareholdings of the British companies are generally more and more fragmented. Because of the same, the institutions which have bought the shares in the British companies are looking for the selling of the same either in the market or by the acceptance of the bid. Another way to do the same is to make a quick profit in a short term (Shleifer et al, 1990). Thus, the major inclination of the British shareholders is to exit rather than waiting. The shareholders in Britain are generally not satisfied with the companies and its performance and decides to sell their shares rather than working with them. They put a lot of pressures on the CEO and the board of directors and vote against them.
Another reason for the short termism is because of the high amount of mobility within the British companies. As a result of the performance based reward and payment systems in UK, the managers in the companies also prefer short term performance. Because of this, the companies impose short term pressures on their own. In addition to this, the short term pressures are imposed within the companies due to the relationship between the top management and the sub-units within the terms (Garth et al, 2015). It has been found that over 70 percent of all the senior managers who are working in the large firms of UK believe that the present levels of profitability of the companies are a very important factor for the determination of the capital budget which has been allocated to them (McMichael et al, 2015). These problems related to the relationship in the firms further go deep and lead to the ignorance of the rest of the company. Because of this ignorance, there is a high diversification within the firms. On the basis of the same, the divisional and sub divisional performance of the employees are measured. All those firms which have been grown because of high rate of acquisition lead to be diversified in terms of the product and the location. Because of the diversification, there is reduction in the patent intensity and an impact on the output. If the R & D functions in the company are not centralized, it will further add to diversification (Bengtsson et al, 2013). The company whose diversification is low will have less short term pressures. An example of the same is the Glaxo, Pharmaceutical Company which has a high amount of profitability and has been most successful. The company also reflects balance of payments and better price to earnings ratio. This is because of the low diversification in the company, organized growth and a centralized R & D.
Thus, it can be concluded that there is strong evidence that a large number of companies in UK suffer from the problems related to the short term pressures. Because of the same, there is also a reduction of R &D expenditures. The short term pressures may vary as per the market and also have an impact on the innovation of the company. Because of the short term pressures, there is a decrease in the overall profits in these companies, which leads to the decrease in the profile of the companies. Instead, in order to have a better market, the short term pressures should be replaced by such kind of performance indicators where there are long term market shares, stability in the overall employment and longer amount of profits. With the help of the same, the short term pressures will be easily eliminated from the British companies. In this research paper, the discussion has been completed on the short term pressures in the British market and the causes of the same.
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