Monthly Archives: July 2025

It Takes More Than Money to Retire Well

How much do you know about money? According to Ramesh Rao, the answer to that question may hold more weight than one might think, especially when it comes to retirement readiness. Rao, who holds the McDermott Centennial Chair in Banking and Finance and directs the Langston Wealth Management Center at Texas McCombs, has been investigating the deeper psychological aspects of financial behaviour. His latest research suggests that it’s not just what people know about money that matters — it’s what they believe they know that may have a profound influence on whether they feel prepared for retirement.

For years, financial studies have shown that individuals with a greater appetite for financial risk tend to be more confident about their ability to retire comfortably. However, Rao’s research goes a step further by identifying subjective financial knowledge (SFK) as a critical factor in this relationship. SFK refers to a person’s perception of their financial knowledge, not necessarily their actual competence. The findings indicate that individuals with high SFK tend to feel more secure in their financial futures and are more willing to take calculated financial risks — traits strongly associated with better retirement planning outcomes.

This insight represents a significant challenge to the traditional approach to financial education. Most literacy programmes concentrate on teaching concrete skills — understanding compound interest, managing budgets, or navigating retirement accounts like 401(k)s. While these skills are undeniably valuable, Rao argues that they may only be part of the equation. Confidence, or the belief in one’s financial capability, can be just as important in determining behaviour. In his view, it is often the mindset rather than the mastery that influences whether someone begins saving early or delays critical financial decisions.

The urgency of rethinking financial literacy becomes even clearer when considered alongside broader economic trends. Traditional pension schemes are steadily disappearing in many countries, including the United States, and people are living longer than ever. As a result, individuals are increasingly responsible for building and sustaining their retirement funds over extended lifespans. “There’s a major crisis in America,” Rao states plainly. “Traditional pension funds are disappearing, and people are living much longer, and they’re not saving enough for retirement.” In such an environment, psychological readiness — including financial confidence — could be a crucial determinant of long-term security.

To support their findings, Rao and his colleagues — Congrong Ouyang of Texas A&M University and Khurram Naveed of the College for Financial Planning — analysed data from the 2022 Survey of Consumer Finance. Drawing on responses from 3,267 working adults across the United States, they examined how SFK, risk tolerance, and perceived retirement readiness interacted. Participants rated themselves on scales of financial risk tolerance, subjective financial knowledge, and retirement preparedness. Even after controlling for variables such as income, education, and health, the data revealed robust correlations.

The research found that only 35% of respondents felt satisfied or very satisfied with the adequacy of their retirement savings. A higher tolerance for financial risk corresponded to a 0.54-point increase in perceived savings adequacy on a 1-to-5 scale. Most notably, nearly 40% of the connection between risk tolerance and retirement confidence could be explained by SFK. Rao considers this to be an exceptionally robust effect, highlighting the profound impact that self-belief in financial matters can have, particularly for individuals with lower incomes or less formal education. Boosting perceived financial competence, therefore, may offer a more accessible route to retirement preparedness than focusing solely on formal financial training.

The implications of this research are far-reaching. Rao believes that financial education must evolve to address both knowledge and perception. “Our basic idea is that people’s actions are driven by what they believe,” he says. “It shifts the focus from reality to perceptions of reality.” While it remains essential to equip individuals with analytical tools and factual knowledge, it is equally important to nurture their confidence. If people are encouraged to believe they can manage their finances effectively, they may be more likely to take proactive steps toward achieving financial stability. In this light, retirement readiness is not merely a question of numbers — it’s also a matter of mindset.

More information: Ramesh Rao et al, The Impact of Subjective Financial Knowledge on Perceived Retirement Adequacy for US Working Adults, The Journal of Wealth Management. DOI: 10.3905/jwm.2025.1.270

Journal information: The Journal of Wealth Management Provided by University of Texas at Austin

UK Productivity Set to Rise with Green Transition

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New research has found that the green transition could significantly boost productivity across the UK economy. The study, led by researchers from the universities of Exeter and Manchester, examined the impact of transitioning to low-carbon alternatives in the power, transportation, and heating sectors. As renewable energy continues to fall in cost and is now cheaper than fossil fuels in most parts of the world, the direct beneficiaries of this shift are these three energy-intensive sectors. However, the research emphasises that the most substantial benefits will not be limited to these industries alone, but will be felt across the broader economy, as the cost of essential services such as electricity, transportation, and heating falls, enhancing overall productivity.

The findings suggest a knock-on effect whereby cheaper energy inputs reduce operational costs for businesses across all sectors, effectively unlocking unspent income that can then be redirected into other areas of the economy, thereby stimulating growth. Dr Jean-François Mercure, who heads Exeter Climate Policy and led the study, noted that power, heating, and transport are not typically drivers of productivity growth. Yet, if energy services become cheaper, all other sectors stand to gain by operating more cost-effectively. However, the study stresses that these economic gains depend on whether the reduced energy costs are genuinely passed on to consumers, rather than being absorbed as profit by utility companies and their shareholders.

Currently, structural barriers are preventing these benefits from reaching the broader economy. Dr Mercure highlighted a key concern: despite falling renewable energy costs, electricity prices remain tied to the price of natural gas, which distorts the pricing mechanism and allows producers or distributors to pocket the savings instead of passing them on to consumers. This dynamic means that the potential productivity gains from a cleaner, cheaper energy system are not automatically realised and will require reform to ensure benefits are equitably shared. In other words, cheaper production does not guarantee more affordable access, and policy will play a decisive role in correcting this imbalance.

The research, which projects outcomes through to 2035, also carries broader global implications. Countries that rely heavily on imported fossil fuels, such as the UK, stand to benefit the most from the green transition. On the other hand, nations whose economies are closely tied to fossil fuel production may face net losses unless they begin to diversify rapidly. Dimitri Zenghelis of the University of Cambridge, a contributor to the study, called it not only a compelling argument for climate policy but also for smart economic policy. He framed the transition as a global race for competitive advantage that the UK cannot afford to ignore, stressing that clean energy represents a win-win opportunity for energy importers.

Hector Pollitt, another economist involved in the study, challenged the outdated belief that environmental policy and economic growth are mutually exclusive. He pointed to the UK’s offshore wind industry as a prime example of how climate-friendly initiatives can drive technological innovation and productivity. Pollitt argued that it is time to abandon the false dichotomy between emission reductions and economic development. Instead, green technology should be embraced as a powerful engine of growth in its own right, capable of reshaping the financial landscape for the better.

Coinciding with the publication of this research is the official launch of Exeter Climate Policy (ECP), a new policy advisory unit based at the University of Exeter. ECP aims to support governments and finance ministers in crafting resilient, effective, and locally tailored policies for the low-carbon transition. Professor Jean-François Mercure, Director of ECP, emphasised the need for region-specific climate-economic models that take into account a country’s unique circumstances, including resource availability, political conditions, and economic disparities. With experience working with international bodies like the UK Government, the European Commission, Brazil’s Ministry of Finance, and the World Bank, ECP offers an independent, collaborative, and evidence-driven approach to shaping the policies required for a fair and prosperous net-zero future. Supported by Green Futures Solutions, the initiative underscores the University of Exeter’s broader mission to lead transformative climate action as part of its Strategy 2030.

More information: Jean-Francois Mercure et al, The effects of low-carbon transitions on labour productivity: analysing UK electricity, heat, and mobility with a techno-economic simulation model, Climate Policy. DOI: 10.1080/14693062.2025.2522836

Journal information: Climate Policy Provided by University of Exeter

Fintech lenders gained ground after Wells Fargo scandal, UC Davis research finds

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The 2016 Wells Fargo financial scandal profoundly eroded public trust in traditional banking institutions. It simultaneously fuelled a notable shift toward fintech lenders among homebuyers, according to a study conducted by the University of California, Davis. The research reveals that fallout from the scandal—one of the most notorious in the American banking sector since the 2008 financial crisis—played a pivotal role in altering consumer behaviour, not due to financial incentives, but due to a collapse in institutional trust.

The study, titled “Trust as an Entry Barrier: Evidence from FinTech Adoption,” was recently published in the Journal of Financial Economics and authored by Keer Yang, an assistant professor at the UC Davis Graduate School of Management with a focus on finance and financial technology. Drawing on a broad data set that spans nearly a decade, Yang’s research establishes a strong correlation between public exposure to the Wells Fargo scandal and the subsequent adoption of digital mortgage lending platforms. According to Yang, “Geographic areas with larger exposures to the Wells Fargo scandal increased the probability of consumers choosing fintech for their mortgage lender,” underscoring how reputational damage can open the door for disruptive financial innovation.

Fintech—short for financial technology—encompasses digital platforms that allow individuals and businesses to access banking and other financial services online. These services have proliferated in the past decade. While fintech’s appeal often lies in its convenience and technological edge, Yang’s research suggests that it was a breakdown in trust, rather than a difference in financial offerings, that spurred consumers to switch. Indeed, the study found that the costs of borrowing, including interest rates and fees for 30-year fixed-rate mortgages, remained relatively stable across banks and fintech firms in the aftermath of the scandal. “Therefore, it is trust, not the interest rate, that affects the borrower’s probability of choosing a fintech lender,” Yang concluded.

The Wells Fargo scandal itself became a symbol of systemic malpractice within the traditional banking industry. Beginning in 2002 and stretching until 2016, bank employees—under intense pressure to meet aggressive sales quotas—allegedly opened millions of unauthorised accounts and imposed unjustified fees on customers. Though investigative reporting by the Los Angeles Times brought some of these practices to light in 2013, public awareness and regulatory response surged in 2016 when Wells Fargo was fined $185 million by federal authorities, followed by a staggering $3 billion penalty imposed later by the U.S. government. These revelations sparked widespread outrage and prompted scrutiny into longstanding banking practices that many consumers had previously taken for granted.

In assessing the impact of the scandal, Yang’s study relied on diverse and robust sources of data, including Gallup surveys measuring public trust in banking, Google Trends search volumes related to banking scandals, and regional newspaper coverage of the Wells Fargo controversy. These were combined with deposit and mortgage loan figures from both traditional banks and fintech firms, providing a comprehensive view of consumer behaviour between 2012 and 2021. The findings paint a clear picture: in regions where Wells Fargo had a substantial presence, consumer migration to fintech mortgage providers increased by an average of 4% post-2016. This behavioural shift represents a considerable acceleration from the pre-scandal fintech market share of 2% in 2010, which grew to 8% by the time of the scandal’s eruption.

Interestingly, while the scandal significantly influenced mortgage lending preferences, it had only a marginal effect on traditional bank deposits. Yang attributes this to the perception of security provided by federal deposit insurance, which may have reassured depositors even as they sought alternatives for other financial products. Nonetheless, the research suggests that while deposit accounts may remain stable, other financial services—particularly those that require greater consumer discretion and trust, such as mortgages—are more susceptible to reputational risk and competitive disruption.

Ultimately, this study contributes to the growing body of literature that examines how trust serves as both a competitive advantage and a barrier to entry within the financial sector. By illustrating how a breach in ethical conduct by a dominant bank catalysed growth for its fintech competitors, Yang underscores the fragile nature of consumer loyalty and the profound implications that misconduct can have for the broader financial ecosystem. The case of Wells Fargo serves not only as a cautionary tale but also as a demonstration of how technology-driven alternatives can swiftly gain traction when traditional players falter.

More information: Keer Yang, Trust as an entry barrier: Evidence from FinTech adoption, Journal of Financial Economics. DOI: 10.1016/j.jfineco.2025.104062

Journal information: Journal of Financial Economics Provided by University of California – Davis

Unemployment Benefits Seen as Better Option Than Low-Paying Jobs

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You’ve likely come across the familiar expression: “It should be worth our time to work.” This notion is not exclusive to countries with limited public assistance; it holds relevance even in welfare-rich nations like Norway, where social safety nets are robust and designed to support those who are either temporarily or permanently out of the labour force. Whether individuals have left work by necessity or choice, the expectation that employment should provide a meaningful financial return persists across much of society. The idea underscores a broader economic principle—people will be more inclined to participate in the workforce if doing so offers a clear and tangible benefit over remaining unemployed.

This principle is known in economic and policy circles as the work incentive principle, which states that employment should always yield a financial advantage compared to receiving unemployment benefits. Roberto Iacono, an associate professor at the Norwegian University of Science and Technology (NTNU), has extensively studied the interplay between minimum wages and welfare provisions. His findings, published in PLOS, examine what happens when both the minimum wage and welfare benefits are reduced to very low levels. His research highlights the consequences of eroding the financial differential between working and claiming benefits—a differential essential to maintaining a motivated and engaged workforce.

In many developed countries, minimum wage laws are established not only to protect workers but to ensure that work remains an attractive option. By guaranteeing a baseline income, governments aim to keep more people within the labour market, thereby strengthening economic productivity and reducing dependency on state support. This aligns with the goals of the work incentive principle. When people who are capable of working see that their efforts will be financially rewarded, they are more likely to remain employed. From a macroeconomic perspective, this promotes a healthier and more resilient economy, thereby reducing the long-term strain on public resources.

However, the picture is not always so straightforward. One major limitation of the work incentive principle is that it can fail to account for those who genuinely cannot work due to illness, disability, or other barriers. When the financial advantages of working are preserved by keeping unemployment benefits extremely low, individuals who are unable to participate in the workforce may find themselves living in poverty. Thus, while the principle may work well in theory, in practice, it requires careful balancing to ensure that no vulnerable group is left behind. Social equity must be considered alongside economic efficiency in the formulation of wage and welfare policies.

A significant concern raised by Iacono’s research is what happens when the financial difference between low-paid work and welfare becomes negligible. In such a situation, the incentive to work disappears. If the minimum wage is set too low, particularly in comparison to subsistence-level welfare benefits, people may rationally choose not to work at all. This scenario is counterproductive to the very aims of the policy. As Iacono points out, when neither option offers a path beyond bare survival, the work incentive principle effectively collapses. For the principle to function, wages must be not only above benefit levels, but consistently above what is required to make ends meet.

The broader implications of these findings are especially relevant for policymakers across the developed world. While many countries continue to uphold welfare systems designed to catch those who fall through the cracks, they often do so in tandem with stagnant or insufficient minimum wages. This creates a fragile equilibrium in which the value of work is eroded over time. Iacono’s research presents a compelling argument that societies cannot rely solely on low wages to sustain high employment. If work is to remain a viable and desirable option, it must offer more than the mere avoidance of poverty—it must provide security, dignity, and the hope of progress. This, ultimately, is the only sustainable foundation for an inclusive and active workforce.

More information: Roberto Iacono, The Welfare versus Work Paradox, PLOS One. DOI: 10.1371/journal.pone.0321564

Journal information: PLOS One Provided by Norwegian University of Science and Technology

Visible Service Efforts May Counteract Tip Fatigue, Research Indicates

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As tipping prompts become increasingly common in establishments where gratuities were once unheard of—such as fast-food counters, coffee shops, bakeries, and even self-service kiosks—consumers are beginning to express growing dissatisfaction with the practice. In many of these cases, customers are being asked to tip before any service has been delivered, contributing to a phenomenon widely referred to as “tipping fatigue” or “tipflation.” The result, according to a new study, is a noticeable shift in public sentiment: many people are growing weary of being asked to reward service that hasn’t yet occurred.

“Businesses should seriously consider whether they want to offer that tipping request,” cautioned Ruiying Cai, an assistant professor at Washington State University’s Carson College of Business and a co-author of the newly published research in the International Journal of Hospitality Management. “We know that down the road it might hurt the business because customers generally don’t like it.” Her comments echo the broader concern that routine digital prompts for tips—particularly those that are automatic or poorly timed—may erode consumer satisfaction and loyalty over time.

The study, authored by Cai in collaboration with hospitality scholars Demi Shenrui Deng of Auburn University and Lu Lu of Temple University, offers new empirical insights into how consumers react to tipping requests in what the researchers term “emerging tipping contexts.” These include businesses where tipping was not previously customary but has become increasingly common due to the rise of digital point-of-sale systems and shifts in consumer behaviour during the COVID-19 pandemic, when many people were more inclined to support frontline workers.

To explore these reactions, the researchers conducted two scenario-based experiments involving over 700 participants recruited through Prolific, a widely used online crowdsourcing platform for behavioural studies. In the first experiment, 320 respondents were asked to consider a hypothetical tipping situation in a coffee shop, focusing on whether an employee was physically present during the tipping request. Interestingly, while the presence of staff had no significant impact on the tipping decision, participants consistently reported more negative emotions and lower satisfaction when prompted for a tip, suggesting that the request itself—especially when made too early—can provoke discomfort and buyer’s remorse.

The second experiment, which involved 414 participants, explored the effects of timing and visibility. Specifically, it compared customer reactions when tipping was requested either before or after service, and whether any service effort was visible. Results revealed that tipping requests made before service were generally perceived more negatively, triggering emotional resistance and reducing the likelihood that customers would feel the tip was justified. However, when service efforts were made visible—such as through active engagement, attentiveness, or tangible service gestures—customer satisfaction improved, even in the presence of a tipping prompt.

Cai summarised this key takeaway succinctly: “Showcase the effort you have provided. Ensure it’s visible to customers. That can alleviate the negative feelings about a tipping request.” This insight provides a practical pathway forward for businesses navigating the challenge of integrating tipping into their customer interactions without alienating patrons. By making their labour and attentiveness more apparent—rather than relying on passive or automated systems—service providers may be able to reframe the tipping experience as more justified and rewarding for the customer.

The genesis of the research was, fittingly, an informal conversation at a professional conference, where Cai and her co-authors—both of whom earned their PhDs at Washington State University—shared their mutual frustrations with the ubiquity of tip prompts. That casual chat evolved into a formal investigation, reflecting a shared curiosity about the behavioural and emotional ramifications of this growing trend in consumer service culture.

While the current findings offer compelling evidence that both the timing of tip requests and the visibility of service effort influence customer satisfaction, the authors also emphasise the need for further study. Additional experiments across different demographics, industries, and cultural settings could deepen our understanding of how to deploy gratuity prompts effectively or whether to use them at all in specific contexts. Nevertheless, the message from this early research is clear: if businesses wish to maintain goodwill and avoid turning customers away, they must tread carefully when deciding how and when to ask for tips—and above all, make their service impossible to ignore.

More information: Ruiying Cai et al, Rethinking tipping request: Examining consumer reactions in emerging tipping contexts, International Journal of Hospitality Management. DOI: 10.1016/j.ijhm.2025.104221

Journal information: International Journal of Hospitality Management Provided by Washington State University

MSU Research Reveals How 2025 Tariffs Disrupted Global Supply Chains

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In the wake of the most extensive series of U.S. tariff increases since the Great Depression, a newly published study from Michigan State University sheds light on how the 2025 trade shocks are reverberating through global supply chains. Featured in the Journal of Supply Chain Management, the research provides a timely theoretical framework designed to help both scholars and policymakers navigate an increasingly chaotic and unpredictable trading environment. As waves of tariffs were imposed, repealed, and reinstated within months, firms around the world were left scrambling to respond to a trade landscape marked not only by protectionism but by profound uncertainty.

“Unlike earlier trade disputes, the 2025 actions unfolded with extreme volatility,” said Professor Jason Miller, the study’s lead author and the Eli Broad Endowed Professor in Supply Chain Management at MSU. “We wanted to build a conceptual model that could explain how firms are reacting — and equip others to anticipate what may come next.” The framework developed by the researchers identifies three main categories of costs that shape how businesses react to such shocks: adjustment costs associated with shifting operations; transaction costs from renegotiating contracts or sourcing alternatives; and opportunity costs stemming from decisions made either too hastily or too late. These costs, the study argues, have a profound impact on a firm’s ability to relocate suppliers, change production sites, or pass higher prices on to consumers.

One of the study’s most notable contributions is its incorporation of uncertainty and potential misconduct into the traditional theoretical discourse around trade. In contrast to previous trade conflicts, where policy direction was more linear and stable, the rapid shifts of 2025 left companies unable to rely on long-term planning. Many were forced to prepare multiple contingency plans, unsure whether the tariffs would remain, be adjusted, or disappear altogether. “Some large importers had at least five, even ten, operational strategies sketched out simultaneously,” Miller observed, highlighting just how unstable the commercial environment had become.

While the research is grounded in supply chain management theory, its authors are keen to emphasise the broader human and societal impact of such disruption. Co-author Professor David Ortega, who holds the Noel W. Stuckman Chair in Food Economics and Policy at MSU, pointed to imported foodstuffs as particularly vulnerable. “When trade policy is unpredictable, food prices can climb sharply,” Ortega said. “This hits lower-income households the hardest, especially when products like bananas or pineapples — which are not grown domestically in significant quantities — offer no easy substitutes.” The ripple effects extend beyond consumers, he added, influencing agricultural production choices and triggering retaliatory measures from trade partners.

In addition to its theoretical elements, the paper offers practical guidance for future research, presenting a curated set of data sources to support empirical studies. These include firm-level import and export records, retail price indexes, and sector-specific trade data. The authors encourage analysis of how and when companies relocate sourcing, the extent to which tariffs are passed through to retail prices, how firms front-load inventory ahead of tariff changes, and where misconduct—such as mislabeling a product’s origin—may occur. This toolkit is intended to empower researchers and practitioners to monitor and assess the ongoing transformation of global commerce with greater precision.

Co-author Yao “Henry” Jin, an associate professor at Miami University’s Farmer School of Business, stressed the broader relevance of the framework. “The global supply chain we’ve known — one built on the assumption of relatively free and stable trade — is eroding,” he said. “Our work aims to help both industry and academia navigate this uncertain new world.” As Professor Miller concluded, the implications stretch far beyond academic interest. “These trade disruptions affect everyone, from government officials and business leaders to ordinary consumers,” he said. “Understanding how and why supply chains respond the way they do is critical if we’re to manage the consequences of such shocks more effectively.”

More information: Jason Miller et al, Shock and Awe: A Theoretical Framework and Data Sources for Studying the Impact of 2025 Tariffs on Global Supply Chains, Journal of Supply Chain Management. DOI: 10.1111/jscm.12350

Journal information: Journal of Supply Chain Management Provided by Michigan State University

Raising the Stakes After Falling Short: Strategic Inflation of Earnings Targets

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When firms fall short of their earnings forecasts, the intuitive response might be to adopt a more conservative approach—lowering expectations, rebuilding credibility, and regaining investor trust gradually. Yet in reality, many companies opt for the opposite strategy. Instead of tempering their outlook, they announce even more ambitious goals for the following period. This counterintuitive behaviour is at the heart of a new study led by Professor Jungwon Min of Inha University in South Korea, alongside Professor Hyonok Kim of Tokyo Keizai University and Professor Konari Uchida of Waseda University’s Graduate School of Business and Finance in Japan. Their research, published online in the Review of Managerial Science on June 3, 2025, reveals how firms strategically inflate forward-looking projections to influence stakeholder perceptions following underperformance.

The study draws on an extensive dataset of 3,273 publicly traded Japanese firms spanning 12 years. The findings demonstrate a consistent and calculated trend: companies that miss their earnings targets frequently respond by issuing significantly overestimated goals for the subsequent reporting period. Roughly 65% of these optimistic forecasts are ultimately not met, indicating that the goals are not merely aspirational but are likely set with full awareness of their improbability. Nonetheless, this strategy often yields short-term rewards. “Despite recent target misses, stock prices respond positively to these overestimated targets,” noted Professor Uchida, underscoring the surprising effectiveness of this manoeuvre in the immediate term.

This pattern is best understood through the lens of organisational impression management—a concept describing how entities craft their image to external audiences, particularly after setbacks. In Japan, publicly listed firms are required to publish annual earnings forecasts, offering researchers a unique opportunity to analyse how projections evolve in direct response to previous performance. The study found that firms often follow a disappointing earnings report with a bold new target, linking the act of overpromising directly to prior failure. In this light, inflated forecasts serve as a reputational buffer, designed to maintain investor optimism and market confidence.

However, the tendency to inflate expectations is not universal. The study identifies several moderating factors that can restrain firms from adopting overly ambitious targets. For instance, the presence of large institutional investors and financial analysts exerts a disciplining effect, as these actors are better equipped to detect patterns of overstatement and demand accountability. Moreover, firms with female directors on their boards are less likely to issue inflated earnings projections. The authors attribute this to greater regulatory compliance and ethical conservatism typically associated with female leadership, which can temper risky or manipulative forecasting practices. This finding highlights the role of governance in mitigating short-sighted corporate behaviour.

Over time, repeated failures to meet inflated targets begin to erode stakeholder trust. As investors become more attuned to the pattern of unmet projections, the market response shifts from supportive to sceptical. “As target misses accumulate, investors may begin to recognise the pattern of biased estimates from firms with repeated earnings shortfalls,” said Uchida. This growing awareness introduces a feedback mechanism that can curtail the efficacy of inflated forecasting. The initial benefit of enhanced perception gives way to reputational damage, market penalties, and increased scrutiny, forcing firms to adopt more realistic expectations if they wish to maintain credibility.

At a deeper level, the study challenges the notion that corporate targets are always the product of data-driven analysis or shaped by peer comparisons. “We also find evidence that firms actively shape their performance targets rather than passively accepting those dictated by past performance or peer benchmarks,” Uchida explained. In other words, these projections are not mere reflections of operational reality; they are carefully constructed narratives designed to influence how the firm is perceived. This insight complicates our understanding of corporate disclosures, suggesting that they may serve strategic rather than informational purposes, especially in contexts of reputational repair.

Ultimately, this research offers a cautionary perspective on the strategic use of forward-looking statements. While ambitious targets may temporarily boost stock prices, their effectiveness hinges on the market’s continued willingness to believe in them. As repeated disappointment sets in, that goodwill can dissipate, turning what was once a clever short-term tactic into a long-term liability. In an environment where market sentiment can be as crucial as financial fundamentals, the line between confidence and deception becomes perilously thin. This study urges investors, regulators, and analysts alike to consider not just what companies promise, but why and how often they fail to deliver.

More information: Hyonok Kim et al, Performance target setting for organizational impression management: overestimated earnings targets after previous target misses, Review of Managerial Science. DOI: 10.1007/s11846-025-00910-0

Journal information: Review of Managerial Science Provided by Waseda University