On business short-termism: the case of CVS’s discontinuing tobacco sales

Abstract

Purpose The purpose of this paper is to examine the effect of CVS’s decision to stop tobacco sales on the company’s share price. Design/methodology/approach The paper uses event study methodology to examine the same day effect of CVS’s announcement and the one-year later effect of CVS’s announcement. Competing pharmacy retail chains’ stock performance is included for comparison purposes. Findings CVS’s shares fell by about one percentage point on the day of the company’s announcement while competitors’ share prices increased. A year later, however, CVS’s share price had increased by about twice as much as competitors’ share prices. Originality/value The finding that a company can make a decision that harms its short-run share price in exchange for a long-run share appreciation suggests that short-termism may not be as significant a concern as some critics of corporate management suggest.