Open AccessGame Analysis on Managerial Entrenchment and Enterprise Investment Myopia
Author(s) -
Meng Li,
Bingxiang Li,
Dan Zhang
Publication year - 2020
Publication title -
journal of physics. conference series
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.21
H-Index - 85
eISSN - 1742-6596
pISSN - 1742-6588
DOI - 10.1088/1742-6596/1670/1/012039
Subject(s) - pooling , shareholder , investment (military) , microeconomics , business , economics , industrial organization , finance , corporate governance , computer science , politics , artificial intelligence , political science , law
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 ( M TL) 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