Managerial Entrenchment, Reputation Building and the Optimality of Short-Term Projects, Journal of Accounting, Auditing and Finance
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 ), 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.
Sridharan, Swaminathan. 1995. Managerial Entrenchment, Reputation Building and the Optimality of Short-Term Projects. Journal of Accounting, Auditing and Finance. 10(3): 565-585.