A recent article in the Harvard Business Review addresses the question of whether today’s businesses suffer from “short-termism”—more specifically, if CEOs are cutting investment to pump up their company’s short-term stock price and then cash out their shares.

While it may be easy to establish a correlation, the author–London Business School finance professor Alex Edmans–argues that it’s more difficult to establish causation. He participated in a study to determine whether short-termism does in fact exist and, if so, to establish the underlying cause.

By zeroing in on when CEO’s shares vest (rather than just on how many shares are sold), Edmans and his research team were able to show that “the more equity CEOs have vesting in a given quarter, the more they cut investment.” Edmans describes further research that analyzes share buybacks and M&A expenditures and how these also relate to CEO equity vesting.

“There is a widespread belief that CEO pay needs to be reformed,” Edmans concludes, “but proposed reforms typically focus on the level of pay. Our research suggests that the horizon of pay is more important—it affects the CEO’s incentives to invest, with major implications for the company’s long-run success and contribution to society.”CEOsCorp