Managerial Myopia, Financial Expertise, and Executive-Firm Matching
37 Pages Posted: 22 Dec 2013 Last revised: 22 Feb 2017
Date Written: January 23, 2017
Existing literature emphasizes skills-based explanations for executive-firm matching, namely in the context of financial expertise. In contrast, our paper argues that informational concerns may also be relevant. We model a public firm with a project opportunity of uncertain quality, where long-run shareholders choose between hiring an operational manager or a financial expert. These managers are equally myopic, however financial experts are also privy to stock-market beliefs. Financial experts invest sub-optimally due to catering incentives, while operational managers tend to engage in signaling-driven overinvestment. We show that operational managers are preferred for low-NPV projects or when stock markets are well informed.
Keywords: managerial myopia, catering, financial expertise, asymmetric information
JEL Classification: D82, G14, G31
Suggested Citation: Suggested Citation