Can stretching actually decrease performance?

Yes and no. Static stretching, when performed acutely (once in a while), may decrease strength and power production prior to athletic performance; however, the National Academy of Sports Medicine promotes the use of chronic (consistent) static stretching prior to activity and/or athletic performance when used as part of an integrated and dynamic warm-up for individuals who exhibit muscle imbalances (tight muscles) and poor posture. Static stretching can, and should be, used to regain proper length of structurally tight muscles to improve postural alignment and joint function immediately prior to activity. Support for this statement comes from several research studies demonstrating that chronic static stretching may not negatively effect overall performance and may increase performance when used in conjunction with other modalities in an integrated warm-up process. If no postural imbalances exist, dynamic stretching is a preferred method of warm-up.

Whether or not stretching decreases performance depends on how you define performance. Stretching a muscle may invoke a reflex response called Autogenic Inhibition. When a muscle is statically stretched for about 30 seconds, the body responds by sending a signal to the muscle to relax. This response is to help protect the muscle from tearing. This signal to the muscle can reduce its ability to contract fully for up to an hour after the stretch, which will decrease the performance of the muscle.

Whether or not the reduced performance of the muscle actually reduces the performance of an activity depends on the activity. For example, if the biceps are extremely tight and limiting the full extension of the arm, stretching the biceps will allow full range of motion of the arms which will most likely increase performance of any activity where arm extension is needed.

As a general rule, unless muscle tightness is producing a limitation to the proper and safe movement of a joint, it is recommended to stretch after exercise instead of before.

Stretching is an extremely important component of fitness. However, certain types of stretching done at certain times can decrease performance. For example, if you are going to attempt a max effort squat, it would be ill advised to statically stretch your legs before attempting the lift. This is because static stretching (holding a stretched muscle for at least 20 seconds) utilizes autogenic inhibition. According to the NASM Essentials of Personal Fitness training textbook, autogenic inhibition is an inhibitory process that occurs when the neural impulses sensing tension are greater than the impulses causing muscle contraction.

So basically, when a muscle is stretched, it stimulates Golgi tendon organs within the muscle fibers. When these sensory receptors are stimulated, they override contraction activity within the muscle, causing it to relax. Golgi tendon organs are basically there to prevent muscle injury. So if you statically stretch before attempting a max effort lift, your muscles are going to be unable to produce maximal muscle contractions due to autogenic inhibition, which will in turn reduce your strength and power.

This is not to say you shouldn't stretch before working out because you should, it's highly important. Instead of statically stretching, focus on warming your muscles up through dynamic and/or active-isolated stretching. These forms of stretching are performed in sets and reps, and are held for only one or two seconds. Dynamic and active stretching work through a different pathway than static stretching. Both forms work through reciprocal inhibition. This type of inhibition will not decrease neural excitability to the degree that autogenic inhibition will.

Clark, M. & Corn, R. & Lucett, S. (2008). NASM Essentials of Personal Fitness Training. 3rd ed. USA: Lippincott Williams & Wilkins. Pg. 153,158,164-165.