NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
loading...

Do Short-Term Managerial Objectives Lead to Under- or Over-Investment in Long-Term Projects

Lucian Arye Bebchuk, Lars A. Stole

NBER Technical Working Paper No. 98
Issued in May 1994
NBER Program(s):Monetary Economics

This paper studies managerial decisions about investment in long-run projects in the presence of imperfect information (the market knows less about such investments than the firm's managers) and short-term managerial objectives (the managers are concerned about the short-term stock price as well as the long-term stock price). Prior work has suggested that imperfect information and short-term managerial objectives induce managers to underinvest in long-run projects. We show that either underinvestment or overinvestment is possible, and we identify the connection between the type of informational imperfection present and the direction of the distortion. When investors cannot observe the level of investment in long-run projects, suboptimal investment will be induced. When investors can observe investment but not its productivity, however, an excessive level of investment will be induced.

download in pdf format
   (1123 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/t0098

Published: Journal of Finance, vol 48, no 2, pp 719-729 (1993)

Users who downloaded this paper also downloaded* these:
Morck, Shleifer, and Vishny w3000 Do Managerial Objectives Drive Bad Acquisitions?
Aggarwal and Samwick w7335 Empire-Builders and Shirkers: Investment, Firm Performance, and Managerial Incentives
Grossman and Hart Corporate Financial Structure and Managerial Incentives
Bebchuk, Fried, and Walker w8661 Executive Compensation in America: Optimal Contracting or Extraction of Rents?
Margo h0040 The Labor Force in the Nineteenth Century
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us