Short-termism, Managerial Talent, and Firm Value

Seeking alpha: Excess risk taking and competition for managerial talent

Richard Thakor

The Review of Corporate Finance Studies, 2021, vol. 10, issue 3, 473-512

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.

Date: 2021
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