Shareholder myopia and managerial opportunism

It is generally acknowledged that myopic investment policies are one of the pressing problems facing U.S. industry. This paper provides a rationale for such myopic investment policies based on managerial opportunism and the allocation of control rights between shareholders and managers. In the analysis, shareholder myopia is a rational response to the hold-up problem engendered by the ability of managers to opportunistically exploit their capacity to generate firm- specific rents. Active shareholder control of the firm's policies exacerbates this myopic tendency. In contrast, when shareholder control is weak, the hold-up problem can mitigate investment distortions