Managerial Entrenchment, Reputation and Corporate Investment Myopia

Nandu J. Nagarajan, K. Sivaramakrishnan, Sri S. Sridhar

Research output: Contribution to journalArticlepeer-review

6 Scopus citations

Abstract

In this paper, we demonstrate that informational asymmetries within a firm along with managerial labor market concerns can jointly result in investment myopia being equilibrium behavior. In contrast to earlier studies (like that of Shleifer and Vishny [1989]), we find that in the presence of bothreputation and entrenchment incentives, managers invest in long-term projects for reputation building and short-term projects to entrench themselves. Further, we establish conditions under which delegating project selection is optimal, even though it requires that the owner tolerate short-term project selection. Finally, we present several empirical implications of our analysis.

Original languageEnglish (US)
Pages (from-to)565-585
Number of pages21
JournalJournal of Accounting, Auditing & Finance
Volume10
Issue number3
DOIs
StatePublished - Jul 1995

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics, Econometrics and Finance (miscellaneous)

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