Short-termism, Managerial Talent, and Firm Value

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2 Scopus citations

Abstract

This paper examines how the firm’s choice of investment horizon interacts with rent-seeking by privately informed, multitasking managers and the labor market. Two main results surface. First, managers prefer longer-horizon projects that permit them to extract higher rents from firms, so short-termism involves lower agency costs and is value maximizing for some firms. Second, when firms compete for managers, firms practicing short-termism attract better managerial talent when talent is unobservable, but larger firms that invest in long-horizon projects hire more talented managers when talent is revealed. (JEL D82, D86, G31, G32, J41) Received July 25, 2019; editorial decision July 7, 2020 by Editor Uday Rajan.

Original languageEnglish (US)
Pages (from-to)473-512
Number of pages40
JournalReview of Corporate Finance Studies
Volume10
Issue number3
DOIs
StatePublished - Sep 1 2021

Bibliographical note

Publisher Copyright:
© The Author(s) 2020. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved.

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