Efficient Capital Markets, Inefficient Firms: A Model of Myopic Corporate Behavior

Jeremy C. Stein

The Quarterly Journal of Economics, 1989, vol. 104, issue 4, 655-669

Abstract: This paper develops a model of inefficient managerial behavior in the face of a rational stock market In an effort to mislead the market about their firms' worth, managers forsake good investments so as to boost current earnings. In equilibrium the market is efficient and is not fooled: it correctly conjectures that there will be earnings inflation, and adjusts for this in making inferences. Nonetheless, managers, who take the market's conjectures as fixed, continue to behave myopically. The model is useful in assessing evidence that has been presented in che "myopia" debate. It also yields some novel implications regarding firm structure and the limits of intergation.

Date: 1989
References: Add references at CitEc
Citations: View citations in EconPapers (734)

Downloads: (external link)
http://hdl.handle.net/10.2307/2937861 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:qjecon:v:104:y:1989:i:4:p:655-669.

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

The Quarterly Journal of Economics is currently edited by Robert J. Barro, Lawrence F. Katz, Nathan Nunn, Andrei Shleifer and Stefanie Stantcheva

More articles in The Quarterly Journal of Economics from President and Fellows of Harvard College
Bibliographic data for series maintained by Oxford University Press ().