Managerial Myopia: Do Managers Privilege Short-term Decisions or Value Creation?

Managerial myopia is detrimental to long-term investors and harms long-term firm competitiveness. In a perfect market, a manager who increases short-term earnings at the expense of long-term oriented investments should be sanctioned by investors. Likewise, a firm’s stock price should not respond positively to managerial myopic decisions. We offer a review of the literature that explores the conditions under which managerial myopia translates into a higher stock price in the short-run. Using this framework, we present the evidence of managerial myopic behaviors. Since managerial myopia is a real concern, we focus on the underlying forces behind it. We organize the literature around three main blocks. Managers have interest into a higher firm stock price in the short-run because of capital market pressure, short-term investor ownership and managerial opportunism. In the light of our review, we discuss potential solutions that address the different sources of managerial myopia.