The benefits of management short sightedness [new study]

High-level decision-makers within a company often behave in a short-sighted way – with a pronounced lack of concern for what might happen in the future. In other words, they’re managerially myopic. You might think that such behaviour could damage a firm’s performance. And you’d be right. [See, for example, Blockholder Trading, Market Efficiency, and Managerial Myopia, a 2009 paper from Professor Alex Edmans of the London Business School.]

But maybe it’s not always detrimental? A new paper from Professor Cheng Li at ​ Mississippi State University, draws attention to the (previously under-explored) benefits that short-sighted managers can bring to their firms.

“[…] a moderately myopic manager incentivizes the proponent of a risky long-term project to produce more information about the project, leading to more informed decision making and higher firm value.”

Raising the question – should myopic managers (who might inadvertently increase their firm’s value) be rewarded financially for their short-sightedness?

“Future work may examine the optimal compensation scheme for managers when the firm’s information environment is endogenously determined as in our paper.”

See: Informational benefits of managerial myopia in Economics Letters, Volume 185, December 2019. A full copy of which is currently available here via the professor’s website.

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