Enjoying the Quiet Life: Corporate Decision-Making by Entrenched Managers

Naoshi Ikeda, Kotaro Inoue () and Sho Watanabe

No 23804, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In this study, we empirically test “quiet life hypothesis,” which predicts that managers who are subject to weak monitoring from the shareholders avoid making difficult decisions such as risky investment and business restructuring with Japanese firm data. We employ cross-shareholder and stable shareholder ownership as the proxy variables of the strength of a manager’s defense against market disciplinary power. We examine the effect of the proxy variables on manager-enacted corporate behaviors and the results indicate that entrenched managers who are insulated from disciplinary power of stock market avoid making difficult decisions such as large investments and business restructures. However, when managers are closely monitored by institutional investors and independent directors, they tend to be active in making difficult decisions. Taken together, our results are consistent with managerial quiet life hypothesis.

JEL-codes: G31 G32 G34 (search for similar items in EconPapers)
Date: 2017-09
New Economics Papers: this item is included in nep-cfn
Note: CF
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Citations: View citations in EconPapers (1)

Published as Naoshi Ikeda & Kotaro Inoue & Sho Watanabe, 2017. "Enjoying the quiet life: Corporate decision-making by entrenched managers," Journal of the Japanese and International Economies, .
Published as Enjoying the Quiet Life: Corporate Decision-making by Entrenched Managers , Naoshi Ikeda, Kotaro Inoue, Sho Watanabe. in Corporate Governance (NBER-TCER-CEPR Conference) , Allen, Fukuda, and Hoshi. 2018

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