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