Managerial Reputation and Corporate Investment Decisions

Financial Management, Vol. 22, No. 2, pp. 145-160, Summer 1993

Posted: 1 Dec 2008

See all articles by David A. Hirshleifer

David A. Hirshleifer

University of California, Irvine - Paul Merage School of Business; NBER

Abstract

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.

Suggested Citation

Hirshleifer, David A., Managerial Reputation and Corporate Investment Decisions. Financial Management, Vol. 22, No. 2, pp. 145-160, Summer 1993. Available at SSRN: https://ssrn.com/abstract=1287747

David A. Hirshleifer (Contact Author)

University of California, Irvine - Paul Merage School of Business ( email )

Irvine, CA California 92697-3125
United States

HOME PAGE: http://sites.uci.edu/dhirshle/

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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