The symptom
Consider an organisation whose quarterly results look genuinely strong — targets met, a confident update delivered to the board, real credit given to the team involved. Two quarters later, performance is noticeably weaker, and on closer inspection, several of the specific causes trace directly back to decisions made during the strong quarter: a project deferred to protect that quarter’s numbers, a cost pulled forward, a commitment made that the following period had to absorb.
At the time, none of this looked like borrowing. Each individual decision was defensible, made by capable people managing real trade-offs under real pressure to deliver. A maintenance project gets pushed back a few weeks so its cost doesn’t land in the current period. A client renewal gets pulled forward with a modest discount to close before the quarter ends rather than just after it. A hiring decision gets delayed because headcount cost would dent the current period’s margin, even though the role is genuinely needed now. None of these, examined individually and in isolation, looks like anything other than sensible short-term prioritisation.
The pattern only becomes visible in retrospect, and only if someone actually goes looking for it. Most organisations don’t, because the weaker quarter that follows gets explained on its own terms — a harder market, a less favourable mix — without anyone tracing its specific causes back to the quarter that preceded it.
What leaders usually conclude
The easy explanation is that the second quarter was simply a harder one — different market conditions, a less favourable mix of work, ordinary variation. This explanation is comfortable partly because it requires no connection to be drawn between the two periods, and comfortable explanations of this kind are rarely challenged with the same scrutiny an uncomfortable one would receive. It also protects the strong quarter’s own reputation: reopening it to ask whether its strength was partly borrowed would mean re-examining decisions that were, at the time, praised as good management.
What the evidence suggests
John Graham, Campbell Harvey, and Shiva Rajgopal’s research, published in the Journal of Accounting and Economics in 2005, surveyed more than 400 senior financial executives directly on this question. The findings were unusually stark: 78 percent of executives said they would sacrifice long-term economic value to meet a short-term earnings target, and the majority said they would delay or cancel a project with a genuinely positive net present value specifically to avoid missing the current period’s number.
This wasn’t a story about a few outlier executives making poor individual choices. It was a majority pattern, reported candidly by the people making the decisions, and driven by a rational read of how the organisations around them actually respond to a missed target versus a met one. As one of the study’s interviewees put it, missing an earnings target is read as a signal that deeper problems exist — “like seeing one cockroach, you know there are others behind the wall” — while hitting the number, however it was reached, builds credibility that a genuinely stronger but less tidy quarter would not have earned.
The mechanism matters for how this shows up inside an organisation that isn’t a public company reporting quarterly earnings at all. The same underlying pressure — a strong current-period number reads as competence, a weak one invites scrutiny — operates on any team measured on a recurring cycle, whether the metric is revenue, delivery, or utilisation. The specific behaviour the research documents, delaying a genuinely valuable investment to protect the current period, translates directly into what a strong-quarter-then-weak-quarter pattern actually looks like from the inside.
What makes this genuinely difficult to counter is that the researchers found the preference for a smooth, predictable number was often stronger than the preference for a larger one. Executives in the study described actively avoiding volatility, even in a favourable direction, because unpredictability itself was read by markets and by their own organisations as a warning sign. Applied inside a single organisation, this suggests the pressure to borrow from a future period isn’t only about hitting a specific target — it’s about avoiding the appearance of a result that looks, to whoever is watching, like it came from somewhere other than steady, reliable management.
Competing explanations
Not every strong-quarter-then-weak-quarter pattern is borrowing. Genuine variation exists, and treating every good result as suspect would create its own dysfunction — a leadership team that second-guesses every strong period risks discouraging the exact behaviour it should be rewarding. What distinguishes borrowing from ordinary variation is traceability: whether the specific causes of the weaker period can be followed back to specific decisions made during the stronger one, rather than to independent factors that simply happened to coincide with it.
A useful distinction worth applying directly: ordinary variation has causes external to the organisation’s own recent decisions — a market shift, a client’s own budget cycle, seasonal demand. Borrowing has causes that lead back to a choice made specifically to protect the prior period’s number. The two can look identical from a distance. They are not the same thing, and they call for different responses.
Looking for your own sector? The Other Sectors page points to the closest match.
Questions worth considering
- For your organisation’s strongest recent period, were any decisions made specifically to protect that period’s headline number?
- If a project or cost was deferred during a strong quarter, has anyone tracked where it actually landed?
- Does your organisation’s culture make a missed target more costly, reputationally, than a met target achieved by quietly borrowing from the next one?
- Would a genuinely honest account of a strong quarter’s own internal decisions look different from the account that was actually given to leadership at the time?
More on this topic: Leadership.
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