Managerial myopia, financial expertise, and executive-firm matching

Fernando Anjos () and Chang-Mo Kang

Journal of Corporate Finance, 2017, vol. 43, issue C, 464-479

Abstract: Existing literature emphasizes skills-based explanations for executive-firm matching, namely in the context of financial expertise. In contrast, our paper argues that informational concerns may also be relevant. We model a public firm with a project opportunity of uncertain quality, where long-run shareholders choose between hiring an operational manager or a financial expert. These managers are equally myopic, however financial experts are also privy to stock-market beliefs. Financial experts invest sub-optimally due to catering incentives, while operational managers tend to engage in signaling-driven overinvestment. We show that operational managers are preferred for low-NPV projects or when stock markets are well informed.

Keywords: Managerial myopia; Catering; Financial expertise; Executive-firm matching (search for similar items in EconPapers)
JEL-codes: D82 G14 G31 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:43:y:2017:i:c:p:464-479

DOI: 10.1016/j.jcorpfin.2017.02.010

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