Managerial myopia, financial expertise, and executive-firm matching

Fernando Anjos, Chang Mo Kang

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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.

Original languageEnglish
Pages (from-to)464-479
Number of pages16
JournalJournal of Corporate Finance
Volume43
Issue number1
DOIs
Publication statusPublished - 1 Apr 2017

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Keywords

  • Catering
  • Executive-firm matching
  • Financial expertise
  • Managerial myopia

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