New research from the Cornell SC Johnson College of Business reveals that pressure to meet earnings targets may push companies to drop weak products and focus on what they do best.

Eric Yeung, professor of accounting at the Samuel Curtis Johnson Graduate School of Management, and co-authors analyzed data from Amazon, representing thousands of firms and millions of consumer reviews. They found evidence that earnings pressure can prompt managers to cut back on weaker, non-core products while protecting their strongest offerings.

The result: short-term product pain in some areas, but better long-term value for investors.

“Our study suggests the bright side of earnings pressure,” Yeung said. “We used detailed product-level data from Amazon customer reviews, combined with financial and stock market data, to track how firms adjust their product strategies under pressure. Our findings challenge the common belief that earnings pressure is usually harmful.”

Their paper “Earnings Pressure and Corporate Product Refocus,” published June 2 in The Accounting Review. Co-authors are Xingyu Shen, M.S. ’19, a doctoral candidate at the University of Rochester; and Jiawen Yan, Ph.D. ’25, a professor at the National University of Singapore.

At first glance, firms under earnings pressure appear to suffer performance-wise – their average product ratings decline in the years following a tight earnings result. But when the research team dug deeper, a clearer pattern emerged: The decline is driven almost entirely by non-core products – those that are less competitive, less popular or less central to a company’s main business.

The researchers found that core products, by contrast, hold steady. These are the products that customers buy repeatedly, rate highly and associate most closely with the firm’s brand and strengths. Even when companies are under pressure, managers tend to protect these core offerings.

“Our study argues that earnings pressure can act as a kind of discipline, especially when managers have incentives to over-expand,” Yeung said. “Left unchecked, executives may pursue pet projects, launching too many products that boost their prestige or influence but don’t necessarily create value for shareholders.”

Non-core products under earnings pressure are more likely to receive lower ratings and disappear from the market in the following years. Core products, however, remain largely unaffected.

The “refocusing” effect is especially strong in companies with weaker managerial incentives, where CEOs own less stock or have compensation structures that don’t strongly reward long-term performance. In these cases, earnings pressure plays a bigger role in reining in excess product diversification.

The stock market seems to recognize this refocusing dynamic. While firms that just meet or beat earnings expectations often receive higher stock returns in the following year, the gains are concentrated among companies that divest from their non-core products.

This finding helps explain a long-standing puzzle: why firms that barely meet earnings expectations often outperform in the stock market later. According to the study, the answer isn’t just signaling or accounting tricks: it’s real changes in product strategy.

The researchers also examine what happens when earnings pressure drops for reasons unrelated to firm performance, such as when analyst brokerage firms merge or shut down, reducing analyst coverage. In those cases, earnings pressure eases – and companies become less likely to cut back on non-core products. 

“The takeaway is not that earnings pressure is always good,” Yeung said. “Cutting costs can still harm employees, innovation or long-term growth in other ways. But pressure to perform can help companies simplify, refocus and abandon weak bets that were dragging them down.”

Sarah Magnus-Sharpe is a staff writer for the Cornell SC Johnson College of Business.