Game Analysis on Managerial Entrenchment and Enterprise Investment Myopia

We analyse the effect of managerial entrenchment on myopic investment behaviour and the corresponding response of shareholders using a two-stage signaling game model. From the dimensions of capability and job-switching costs, we categorize managers into three types: talented managers with high job-s...

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Bibliographic Details
Published in:Journal of physics. Conference series 2020-11, Vol.1670 (1), p.12039
Main Authors: Li, Meng, Li, Bingxiang, Zhang, Dan
Format: Article
Language:English
Subjects:
Game theory
Investment myopia
Managerial entrenchment
Physics
Signaling game equilibrium
Stockholders
Switching
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Summary:We analyse the effect of managerial entrenchment on myopic investment behaviour and the corresponding response of shareholders using a two-stage signaling game model. From the dimensions of capability and job-switching costs, we categorize managers into three types: talented managers with high job-switching costs (M TH), talented managers with low job-switching costs (MTL) and untalented managers (M u). We determine a pooling equilibrium in which all types of managers prefer to select short-run projects under managerial entrenchment motivation. The results reveal that managerial entrenchment motivation and action will contribute to investment myopia. Furthermore, a partially separating equilibrium in which M TL select short-run projects but M TH and M u select short-run projects emerges if the optimal subsidy is given to managers. Meanwhile, shareholders decide whether or not to retain incumbent managers according to the project yield
ISSN:1742-6588
1742-6596
DOI:10.1088/1742-6596/1670/1/012039