Short-term pressures (S-TPs) are defined as factors which tend to increase the rate of discount applied and/or which may foreshorten the time limit of revenue and capital investments. Accordingly, short-termism occurs where a firm, or some of its managers, applies an excessive discount rate or a foreshortened time horizon to investments. Revenue investments are particularly susceptible to S-TP because these expenses are charged to the profit and loss account of a period, having been incurred wholly or partly in order to enhance future profitability without affecting current trading. The effects of S-TPs on capital investment, such as investment in fixed assets and new equipment, are generally not as adverse as on revenue investment because the risks are relatively lower, payback period is shorter and the amount spent is often capitalized and therefore does not affect the current period's profit. This definition of short-termism also allows S-TP to include factors like high interest rates and low profitability, which increase the opportunity cost of capital. The effect of these pressures would be to reduce capital investment, in particular revenue investments in research and development and in other intangible assets - such as training or education - with their attendant uncertainty and long-term nature, and to increase the bias towards projects with short-term payback periods.

Short-termism within management can distort decision making and add difficulties in international competition. The counter-argument is that such pressures, to the extent that they are felt at all, are useful because they help to eliminate corporate slack, to the long-term benefit of the businesses. Supporters of industry argue that the financial markets pay more attention to the short term and managers are therefore acting under pressure from the City of London. There is some evidence to support such an argument: the contested takeovers in the UK and suggestions that the financial markets do not understand or that they ignore the technological information given out by companies. Others, who are in favour of the City, claim that the stock market's short-termism is not proven, and argue that the real culprits are the managers who favour short-term decisions quite independently of any spur from the financial markets. Accordingly, the debate on the causes of S-TP focuses on how far they arise from external and internal factors.

External factors are found outside the organization and include: general economic environment; institutional shareholders (owners of firms) and their objectives; performance evaluation of fund managers acting on behalf of the owners; type of investment and treatment of revenue investments within generally accepted accounting practices and standards; efficiency of financial markets including the quality of information given by the management of companies to their owners; and managers' perception of the financial markets.

Internal factors are generated within the management itself and include: organization structures and management control styles; performance evaluation measures; and remuneration of top managers.