TY  - JOUR
AU  - Bebchuk,Lucian Arye
AU  - Stole,Lars A.
TI  - Do Short-Term Managerial Objectives Lead to Under- or Over-Investment in Long-Term Projects
JF  - National Bureau of Economic Research Technical Working Paper Series
VL  - No. 98
PY  - 1994
Y2  - May 1994
UR  - http://www.nber.org/papers/t0098
L1  - http://www.nber.org/papers/t0098.pdf
N1  - Author contact info:
Lucian A. Bebchuk
Harvard Law School
1545 Massachusetts Avenue
Cambridge, MA 02138
Tel: 617/495-3138
Fax: 617/812-0554
E-Mail: bebchuk@law.harvard.edu

Lars Stole
University of Chicago
Graduate School of Business
1101 East 58th Street
Chicago, IL  60637
Tel: (773) 702-7309
E-Mail: lars.stole@ChicagoBooth.edu
AB  - 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.
ER  -