Managerial Myopia: Do Managers Privilege Short-term Decisions or Value Creation?

Franck Bancel and Alexandre Garel
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Franck Bancel: ESCP Europe
Alexandre Garel: ESCP Europe

Bankers, Markets & Investors, 2015, issue 135, 50-58

Abstract: Managerial myopia is detrimental to long-term investors and harms long-term firm competitiveness. In a perfect market, a manager who increases short-term earnings at the expense of long-term oriented investments should be sanctioned by investors. Likewise, a firm’s stock price should not respond positively to managerial myopic decisions. We offer a review of the literature that explores the conditions under which managerial myopia translates into a higher stock price in the short-run. Using this framework, we present the evidence of managerial myopic behaviors. Since managerial myopia is a real concern, we focus on the underlying forces behind it. We organize the literature around three main blocks. Managers have interest into a higher firm stock price in the short-run because of capital market pressure, short-term investor ownership and managerial opportunism. In the light of our review, we discuss potential solutions that address the different sources of managerial myopia.

Keywords: Managerial Myopia; Managerial Short-termism; Corporate Investment; Managerial Incentives (search for similar items in EconPapers)
JEL-codes: G30 G31 G32 (search for similar items in EconPapers)
Date: 2015
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