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Does CEO myopia impede growth opportunities?

Author

Listed:
  • Murad Antia

    (University of South Florida)

  • Christos Pantzalis

    (University of South Florida)

  • Jung Chul Park

    (University of South Florida)

Abstract

We present evidence that the negative impact of CEO short-termism on firm value can be attributed to a sub-optimal exercise of real options. Accordingly, the value relevance of firms’ real options portfolios is maximized in the absence of CEO temporal myopia. Moreover, the impact of real options on firms’ stock returns’ idiosyncratic characteristics is more pronounced when CEOs’ decision horizons are longer, in line with the view that enhanced operating flexibility from longer decision horizons can amplify the convexity of real options’ payoffs. These findings have important implications regarding the impact of CEO career horizons on corporate strategies and board decisions related to CEO incentives and succession.

Suggested Citation

  • Murad Antia & Christos Pantzalis & Jung Chul Park, 2021. "Does CEO myopia impede growth opportunities?," Review of Quantitative Finance and Accounting, Springer, vol. 56(4), pages 1503-1535, May.
    • Handle: RePEc:kap:rqfnac:v:56:y:2021:i:4:d:10.1007_s11156-020-00934-5
    DOI: 10.1007/s11156-020-00934-5
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    More about this item

    Keywords

    Real options; Managerial myopia; CEO decision horizon; Agency theory; Operating flexibility;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G40 - Financial Economics - - Behavioral Finance - - - General

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