Myopic Investment Decisions and Competitive Labor Markets
Abstract
This paper analyzes an agency problem where managers are able to control an unobservable variable that affects the time distribution of returns on a firm's investments. Managers have an incentive to select myopic investments in order to convince the labor market that they have relatively high ability. The authors demonstrate that, if employment terms are determined in competitive labor markets and there are lower bounds on compensations, then, at the principal's second-best contract, managers make a myopic investment choice. They also characterize the structure of the principal's second-best contract and conduct comparative statics at this solution. Copyright 1994 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.Download Info
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Bibliographic Info
Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.
Volume (Year): 35 (1994)
Issue (Month): 4 (November)
Pages: 855-75
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Citations
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.Cited by:
- Rim Zouari-Hadiji & Ghazi Zouari, 2010. "Gouvernance interne et investissement en R&D : une comparaison internationale," Working Papers FARGO 1100102, Université de Bourgogne - Leg (laboratoire d'économie et de gestion)/Fargo (Research center in Finance,organizational ARchitecture and GOvernance).
- Antia, Murad & Pantzalis, Christos & Park, Jung Chul, 2010. "CEO decision horizon and firm performance: An empirical investigation," Journal of Corporate Finance, Elsevier, vol. 16(3), pages 288-301, June.
- Eckwert, Bernhard, 1996. "Equilibrium term structure relations of risky assets in incomplete markets," The Quarterly Review of Economics and Finance, Elsevier, vol. 36(3), pages 327-346.
- Ingmar Nyman, 2004.
"Stock Market Speculation and Managerial Myopia,"
Hunter College Department of Economics Working Papers
402, Hunter College: Department of Economics, revised 2004.
- Nyman, Ingmar, 2005. "Stock market speculation and managerial myopia," Review of Financial Economics, Elsevier, vol. 14(1), pages 61-79.
- Jörn Hendrich Block, 2008. "Family Management, Family Ownership and Downsizing: Evidence from S&P 500 Firms," SFB 649 Discussion Papers SFB649DP2008-023, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
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