Renegotiation, investment horizons, and managerial discretion

Noe, Thomas and Rebello, Michael (1997) Renegotiation, investment horizons, and managerial discretion. Journal of Business, 70 (3). pp. 385-408.


In this article, the authors show that the evolution of managerial entrenchment can distort investment horizons. Both myopic and hypermetropic distortions can arise. The direction of these distortions is determined by the locus of control and their pervasiveness by the degree of management entrenchment. Myopic distortions occur when shareholders directly determine investment policy. Hypermetropic distortions occur when management sets investment policy. The inherent hypermetropic bias of managers is mitigated by front-loaded compensation packages and pension plans tied to short-run performance. These distortions in investment horizons may have implications for the allocation of corporate control.

Item Type: Article
Keywords: Investments; Portfolio management; Risk assessment; finance
Subject(s): Finance
Date Deposited: 01 Feb 2012 19:36
Last Modified: 24 Sep 2018 14:55
Funders: N/A

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