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Research Details
Managerial Entrenchment, Reputation Building and the Optimality of Short-Term Projects, Journal of Accounting, Auditing and Finance
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 both reputation 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.
Type
Article
Author(s)
Date Published
1995
Citations
. 1995. Managerial Entrenchment, Reputation Building and the Optimality of Short-Term Projects. Journal of Accounting, Auditing and Finance.(3): 565-585.