The Review of Corporate Finance Studies Vol. 10 No. 3 2021
Short-termism, Managerial Talent, and Firm Value
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.
- DOI
- 10.1093/rcfs/cfaa017
- Volume
- 10
- Issue
- 3
- Pages
- 473-512
- Language
- en
- Sources
- bibtex:phds-export.bib crossref openalex