Stock Market Speculation and Managerial Myopia
AbstractThis paper extends the analysis of managerial share price concerns by allowing informed trading in the stock market. It is shown that because they decrease the manager's information advantage vis-à-vis the stock market, individual investors who trade on private information improve the efficiency of corporate investment. This improvement does, however, fall short of first-best efficiency. Moreover, a stronger managerial share-price concern increases the expected profit from informed trading. Hence, by encouraging individual investors to collect information about corporate decisions and trade on it, managerial myopia tends to automatically bring forth a partial solution to the problems that it causes.
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Bibliographic InfoPaper provided by Hunter College Department of Economics in its series Economics Working Paper Archive at Hunter College with number 402.
Length: 32 pages
Date of creation: 2004
Date of revision: 2004
Managerial Myopia; Corporate Investment; Informed Trading; Stock Market Incentives;
Other versions of this item:
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
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