Work

Short-termism, Managerial Talent, and Firm Value

Year: 2020

Type: article

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.

Source: The Review of Corporate Finance Studies

DOI: 10.1093/rcfs/cfaa017

Author: Richard T Thakor

Institutions: University of Minnesota, Massachusetts Institute of Technology

Language: English

Topic: Corporate Finance and Governance

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

SDG: Decent work and economic growth

Open Access status: green

OpenAlex ID: W3083634858

FWCI: 2.791

Cites: 53

Cited by: 17

Related to: 10