Managerial Reputation and Corporate Investment Decisions
Financial Management, Vol. 22, No. 2, pp. 145-160, Summer 1993
Posted: 1 Dec 2008
This review provides a conceptual framework for categorizing the effects of a managerial concern for short-term reputation on biases in corporate investment decisions. The incentives of managers to use investment choices as a tool for building their reputations or the reputations of their firms are examined. These incentives come in 3 main forms: 1. visibility bias, which encourages a manager to try to make short-term indicators of success look better, 2. resolution reference, which encourages managers to try to advance the arrival of good news and delay bad news, and 3. mimicry and avoidance, which encourages a manager to take the actions that the best managers are seen to do, and to avoid the actions the worst managers are seen to do. The sheer variety of possible ways of manipulating investment choices to influence reputation may seem bewildering. However, actions that are associated with rises in stock prices tend to enhance the firm's reputation.
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