Tackling Shareholder Short-Termism and Managerial Myopia

Compensation Duration, Shareholder Governance, and Managerial Short-Termism∗

In this paper, I investigate the interaction between the duration of executive compensation and shareholder governance. I show that short-term compensation can elicit shareholder intervention and thus enhance firm value. The central mechanism is that the use of short-term incentives enables informed incumbent shareholders to commit to using their private information to intervene (voice) instead...

Ownership Transition, Managerial Short-termism, and Exploratory versus Exploitative Innovation Strategy

Optimal Short-Termism∗

This paper studies incentives in a dynamic contracting framework of a levered firm. In particular, the manager selects long-term and short-term efforts, while shareholders choose initially optimal leverage and ex-post optimal default policies. There are three results. First, shareholders trade off the benefits of short-termism (current cash flows) against the benefits of higher growth from long...

Agency Conflicts over the Short and Long Run: Short-Termism, Long-Termism, and Pay-for-Luck∗

We develop a dynamic agency model in which the agent controls current earnings via short-term effort and firm growth via long-term effort and the firm is subject to both shortand long-run shocks. Under the optimal contract, agency conflicts can induce both overand underinvestment in shortand long-term efforts compared to first best, leading to shortor long-termism in corporate policies. Exposur...

Industry Structure, Executive Pay, and Short-Termism

This study outlines a new theory linking industry structure to optimal employment contracts and executive short-termism. Firms hire their executives using optimal contracts derived within a competitive labour market. To motivate effort firms must use some variable remuneration. Such remuneration introduces a myopia problem: an executive would wish to inflate early expected earnings at some risk...