Research On The Corporate Investment Myopia Under Managerial Entrenchment

Corporate financial management include three aspects: the capital structure, the dividend policy, the investment behavior. None of these is dispensable. Compared to financing and dividend policy,corporate investment activity impacts the corporate performance and risk more doughty. As the foundation of cash flow growth, corporate investment behavior acts as the beginning of corporate fiscal policy in practice, so that the academic research should focus much more on the corporate investment behavior. According to the complexity of corporate invesement behavior, the research in China on this field is very crude so far, and hardly handles the western theory and analysis tools systemic. Because of the management restriction, the irrational investment behavior is much more serious. In this paper, author helps to stir the corporate investment behavior research and provide effectual governance proposal on irrational corporate investment behavior, especially the investment myopia.On the basis of using for reference and absorbing the western relevant research achievement, referring to the signaling function of investment behavior, This dissertation uses the two period game theory to analysis the inside reasons why the managers,who are entrenched, perfer short term project. This paper tells us managers choose short term project to protect their profits and rights, it also tells us the managerial entrenchment difference among different type managers, if we can take some rational long term incentive measure, the low level entrenched managers will change their behavior to realize supreme corporate value. The following is the main contributions of this dissertation:(1)Recur todynamic signaling game theory, The thesis did deep-seated research onmanagerial entrenchment, finding the manager's efficient equilibrium behavior exsiting, whichmight be perfectly pooling equilibrium or partially separating equilibrium. That means any typemanagers will choose short term project to protect their benefit under managerial entrenchment.(2)Recur to experiment to verify managerial entrenchment theory. According to the lab data, this paper not only verifies the truth of managerial entrenchment, but also sloves the problem of historical data shortage. It provides a new method to research on managerial entrenchment motivation.