Managerial Myopia, Financial Expertise, and Executive-Firm Matching

37 Pages Posted: 22 Dec 2013 Last revised: 22 Feb 2017

See all articles by Fernando Anjos

Fernando Anjos

NOVA School of Business and Economics

Chang Mo Kang

UNSW Australia Business School, School of Banking and Finance; Financial Research Network (FIRN)

Date Written: January 23, 2017

Abstract

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

Anjos, Fernando and Kang, Chang Mo, Managerial Myopia, Financial Expertise, and Executive-Firm Matching (January 23, 2017). Journal of Corporate Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2370919 or http://dx.doi.org/10.2139/ssrn.2370919

Fernando Anjos (Contact Author)

NOVA School of Business and Economics ( email )

Campus de Carcavelos
Rua da Holanda, 1
Carcavelos, 2775-405
Portugal

HOME PAGE: http://sites.google.com/site/fernandoanjossite/

Chang Mo Kang

UNSW Australia Business School, School of Banking and Finance ( email )

Sydney, NSW 2052
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

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