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Firm and Managerial Incentives to Manipulate the Timing of Project Resolution

David A. Hirshleifer
University of California, Irvine - Paul Merage School of Business

Tarun Chordia
Emory University - Department of Finance

Sonya S. Lim
DePaul University - Kellstadt Graduate School of Business


March 21, 2001

Dice Center Working Paper No. 2001-4

Abstract:     
A manager who wants to be viewed favorably has an incentive to advance or delay the arrival of information about his firm's profitability. In the model, a high ability manager tries to advance resolution of a likely-favorable outcome, while a low ability manager may defer resolution. Such manipulation of information arrival causes greater investment in execution projects (which tend to resolve early) than exploratory projects (which tend to resolve late), and affects investment in hastening or retarding project resolution. In contrast with previous literature, in some cases managers may secretly overinvest. The model offers empirical implications about innovative versus conventional investments, associated stock price reactions, and corporate control. The theory also implies a perverse sorting of high ability managers to conventional activities and low ability managers to visionary enterprises.

JEL Classifications: G3, G31, G30, O31, M21, D21, L21, D23, D82

Working Paper Series

Date posted: April 25, 2001 ; Last revised: April 26, 2001

Suggested Citation

Hirshleifer, David A., Chordia, Tarun and Lim, Sonya S., Firm and Managerial Incentives to Manipulate the Timing of Project Resolution (March 21, 2001). Dice Center Working Paper No. 2001-4. Available at SSRN: http://ssrn.com/abstract=265753 or doi:10.2139/ssrn.265753


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Contact Information

David A. Hirshleifer (Contact Author)
University of California, Irvine - Paul Merage School of Business ( email )
Irvine, CA 92697-3125
United States
Tarun Chordia
Emory University - Department of Finance ( email )
Atlanta, GA 30322-2710
United States
404-727-1620 (Phone)
404-727-5238 (Fax)
Sonya S. Lim
DePaul University - Kellstadt Graduate School of Business ( email )
1 East Jackson Blvd.
Chicago, IL 60604-2287
United States
HOME PAGE: http://mozart.depaul.edu/~slim/
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