Investment and Managerial Preferences

Jaideep Chowdhury () and Gokhan Sonaer ()
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Jaideep Chowdhury: James Madison University
Gokhan Sonaer: Duquesne University

Economics Bulletin, 2015, vol. 35, issue 1, 392-399

Abstract: We develop a theoretical model of managerial myopia based on the Q theory of investment. In this model, the manager chooses both investment quantity and the investment horizon. The manager may be myopic, causing an excess weight to be placed by the manager on short term profits, relative to firm-value maximizing behavior. In such a case, investments may be expected to be of a shorter time horizon, even if there are advantages to longer term investing. Our model yields a new important testable implication. The sensitivity of investment to growth opportunities is lower for myopic managers.

Keywords: Q Theory of Investment; Managerial Myopia (search for similar items in EconPapers)
JEL-codes: G0 G3 (search for similar items in EconPapers)
Date: 2015-03-11
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