Abstract

Due to shorter CEO tenures, capital market pressure and highly frequented earnings reports, there are little incentives for salaried CEOs to pursue long-term strategies. In contrast to salaried CEOs, founder-CEOs normally have a longer decision horizon, higher ownership percentage and are more independent, e.g. in terms of their reputational status. According to their long-term personal affiliation to the company, they are intrinsically motivated and, likely, more emotionally attached. This raises the question whether founder-CEOs are more long-term- and value-oriented and, consequently, run companies less myopic than salaried CEOs.

“Managerial myopia” is regarded as the preference of managers to choose projects or strategies with immediate revenues over long-term oriented projects and strategies that will generate future earnings. It is mainly associated with cuts in R&D or other long-term related investments at the expense of the company’s future value. CEOs have different motivations to behave myopically, e.g. to pursue companies’ short-term goals or to maximize their own utility. In the latter, they have personal incentives to underinvest, e.g. signaling effects towards the job market, improvement of their negotiating position for salary, deterioration of the successor’s position or other opportunistic reasons. We are focusing on the case of CEOs trying to achieve the company’s earnings target by using last year’s earnings as “aspiration level”. Prior studies prove that managers try to avoid earnings decreases compared to last year.

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