Existing models of corporate "short-termism" rely on an exogenously imposed, suboptimal management objective function. This paper endogenizes both managers' concern for short-term stock prices and the resulting distorsions. We consider a standard agency problem between corporate managers and investors in which the short-term share price is determined before the manager has made her effort choice and therefore cannot be informative in the standard principal-agent sense.
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Paper provided by Australian National University - Department of Economics in its series Papers with number
307.
Length: 17 pages Date of creation: 1996 Date of revision: Handle: RePEc:fth:aunaec:307
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