Myopic Behavior Research Articles

CEO Greed, Corporate Governance, and CSR Performance: Asian Evidence

In this study, we examined the association between CEO greed and corporate social responsibility (CSR) performance with a particular emphasis on the curtailing role of corporate governance. We found that CEO greed has a negative effect on CSR, since an uncontrolled pursuit of personal gain typically reveals myopic behavior and the foregoing of investment in CSR by a greedy CEO. Additionally, we found that CEO compensation in the form of large bonuses, support, and restricted stocks options weakened the link between CEO greed and CSR. Concerning the power dynamics amongst CEOs (CEO duality and tenure), we found that CEO duality moderates the negative relation between CEO greed and CSR. We also explored the curtailing role of corporate governance (proxies represented by board gender diversity and board independence) in the association between CEO greed and CSR. Our findings show that gender diversity curtails the negative effect of CEO greed on CSR once it reaches critical mass on the corporate board. Gender critical mass also curtails the negative impact of CEO greed on CSR, even if the CEO exercises duality. Our findings have empirical and practical implications. This study contributes to the existing literature by exploring the relationship between CEO greed and CSR in Asia, a region not renowned for CSR performance. This study also provides evidence for the curtailing role of compensation and governance factors in the negative relationship between CEO greed and CSR.

Polycentricity and adaptation: A multilevel selectionist approach

Polycentric organizations allow highly functional, or “group-beneficial,” outcomes to emerge from the myopic behavior of rule-guided individuals. How does polycentricity achieve this feat? Drawing on multilevel selection theory, I argue that polycentric orders support successful outcomes by defining group boundaries and reducing within-group fitness variance relative to between-group variance. The Price equation suggests that, by doing so, polycentric orders facilitate a process of collectively beneficial adaptation, including the capacity to evolve mechanisms for monitoring and punishing rule violators.

Impact of Institutional Investors and Board Independence on Corporate Short-Termism: Longitudinal Evidence from Zimbabwe

This study examines the effects of institutional investors and board independence on corporate short-termism, using panel data for 36 listed companies in Zimbabwe from 2010 to 2018. By using the Arellano-Bover/Blundell-Bond system Generalised Methods of Moments (Sys-GMM) dynamic estimator, this study effectively addresses autocorrelation, heteroscedasticity and endogeneity in panel data analysis. The empirical results of this study revealed that institutional investors significantly influence managers to make myopic investment decisions, whereas independent non-executive directors reduce managers’ myopic tendencies. Additional analyses of the results confirms that INEDs mitigate managers’ myopic behaviour, whereas institutional investors increase the managers’ myopic behaviour. More so, this study found a significant and positive relation between dedicated institutional ownership and capital expenditures, which suggests that dedicated institutional investors help to reduce short-termism. Given that the results show that past short-termism begets more short-termism, the results of this study can help shareholders, policymakers, regulators and executives to understand the influence of institutional investors and board independence on long-term corporate investment decisions, which is an unexplored issue from the Zimbabwean context.

Does Mandatory Quarterly Reporting Induce Managerial Myopic Behavior? Evidence from Japan

Does Mandatory Quarterly Reporting Induce Managerial Myopic Behavior? Evidence from Japan

Executive pay bandwagon and corporate innovation

Based on social comparison theory and principal-agent theory, we examine the influence of the executive pay comparing mentality (i.e., pay bandwagon) on corporate innovation. Our findings suggest that a greater propensity of the executive pay bandwagon is associated with lower level of corporate research and development spending, and fewer high-quality patents, leading to a lower level of total factor productivity. Additionally, our analysis shows that executives with a strong comparing mentality exhibit less risk-taking but more myopic behaviors, thereby reducing their incentive to engage in innovation. We further find that corporate governance has moderating effects on the relationship between the executive pay bandwagon and corporate innovation. Overall, we find that executive pay bandwagon triggered by external pay inequality is a type of intrinsic motivation that affects firms’ innovation strategy and innovation efficiency.

Farsighted stability of distributed energy resource sharing

In a storage sharing system consisting of prosumers, the advantages of peer-to-peer energy storage sharing rely on the stability of the system. However, previous studies only considered the impact of prosumers’ myopic behaviors but overlooked their farsighted behaviors on the stability. In a farsighted view, prosumers not only consider their operating cost generated by one-step (joint) defections but also concern with the subsequent reactions of others to their actions. Directly applying the core, a myopic stability criterion, would increase the risk of misjudgment on the stability. To fill this gap, this paper proposes a method based on the largest consistent set (LCS) to capture the impact of prosumers’ farsighted behaviors on the stability under the optimal operation policy. The optimal operation policy includes an optimal storage decision and a stable cost allocation rule. This paper first derives the analytical solutions of the optimal storage that minimizes the expected daily operating cost of the system for tackling the technical complexity of generalizing from the conventional time-of-use pricing to multi-tier time-of-use pricing. Then, to identify the farsighted stability under Shapley value cost allocations, we investigate the conditions that the grand coalition is in the LCS, namely the conditions of the stable system. Combining real data on residential energy consumption, case studies show that the core will significantly underestimate the probability of the system stability. Such an underestimation increases with the growth of the system scale. This paper may stimulate future relevant studies on farsighted energy sharing.

Does Integrated Reporting Affect Real Activities Manipulation?

Integrated reporting (IR) by firms is intended to improve not only the quality of information available to external parties, but also internal managerial decision making. IR is considered useful to address the short-term orientation of firms caused by pressure from short-term oriented shareholders. This study examines whether the introduction of IR discourages real activities manipulation, a form of myopic behavior. Using a large sample of Japanese listed companies, the study empirically tests the effect of IR on real activities manipulation through panel data regression analysis. We find that the introduction of IR is related to higher level of abnormal cash flows from operations, lower level of abnormal production costs, and lower level of total activities manipulation. These results generally suggest that firms tend not to engage in real activities manipulation after IR is introduced. Our results also show that while there is insignificant difference in the degree of real activities manipulation between IR and non-IR firms immediately after the introduction of IR, the degree of real activities manipulation is generally smaller in IR firms than in non-IR firms after more time has passed since the introduction of IR, consistent with the view of practitioners that IR is a continuous improvement process of internal decision making. Regarding the non-financial aspects, additional analysis shows that introducing IR is positively associated with the performance of environmental, social and governance (ESG). Our findings suggest that IR could discourage companies’ short-term oriented behavior and promote long-term value creation, which is of interest to a wide range of stakeholders. Thus, our findings provide insightful evidence for researchers, practitioners, and policy makers interested in the role of IR in stakeholder-oriented corporate governance mechanisms.

Does the Adaptive Market Hypothesis Reconcile the Behavioral Finance and the Efficient Market Hypothesis?

This study aims to test the adaptive market hypothesis by using the myopic behavior of investors as a new proxy. The data have been taken from New York Stock Exchange from December 1994 to December 2020. Following this collection of data, the companies’ stock prices were distributed into six different portfolios based on size, investment, a book-to-market value, and operating profit. Ordinal logistic regression was used to calculate the probability of recovery of losses after experiencing a decline in the market. As part of the robustness analysis, this study replaces the Sharpe ratio with a Lower Partial Moment ratio. Most of the results for the Sharpe ratio and Lower Partial Moment ratio are similar. During 1995–1999, 2002–2006, and 2010–2020, the investors have not shown myopic behavior towards losses, but from 2000–2001 and 2007–2009 the investors exhibited myopic characteristics. Furthermore, as investors move between myopic and non-myopic loss aversion, the study reports that the US market is both efficient and inefficient at various points in time, following the adaptive market hypothesis. Thus, such a finding could act as a basis for future investment models by adapting traditional models or by building and contributing to the development of new ones.

A topology-based bounded rationality day-to-day traffic assignment model

This paper analyzes the day-to-day adjustment process of users’ behaviors in a transport network which is affected by relevant alterations such as disruptions due to critical events which cause the impossibility to use one or more links. For representing the progressive adjustment of the flows on the network to reach a new equilibrium, a day-to-day discrete-time model is proposed, based on the idea that people are bounded rational in their choices, i.e. they often do not behave according to the optimal solution but they accept solutions they consider satisfying. Users, in their choice process, are influenced by the topological similarity between the route they are currently using and others. This means that they tend to prefer the solutions that are more similar to the one they are already using. In parallel, users exhibit a myopic behavior, i.e., they tend to overestimate the goodness of a route if, when using it, they suddenly experience a significant reduction in travel time compared to what they are used to. In the paper it is shown that such route choice behaviour implies that the steady state of the system corresponds to a Bounded Rational User Equilibrium, i.e., a state that does not diverge from the user equilibrium more than a certain value which increases when the relative importance given to the topological similarity grows. The model also assumes that these biases vanish, at least with respect to those routes that are most frequently used by users, after a sufficient amount of time. Under certain conditions, it is then shown that the steady state can eventually collapse into a User Equilibrium. The effectiveness of the proposed model is assessed via simulation results in which two test networks are analyzed in detail to show the evolution of the users’ behaviour in a transport network after a disruption.

Do IPO Firms Become Myopic?

Abstract We compare the growth and responsiveness to demand shocks of post-initial public offering (IPO) firms and their private counterparts. Using multiple measures of myopia and multiple ways to match IPO firms with private firms, we do not find evidence of myopic behavior by public firms. IPO firms respond more to investment opportunities and have higher productivity in their early public years. Our results on public firms’ sensitivity to growth opportunities hold under several robustness tests, including when we consider firms’ total growth including acquisitions. The results show the importance of matching public to private firms early in their life.

Strategic investment decisions in an oligopoly with a competitive fringe: An equilibrium problem with equilibrium constraints approach

Modern wholesale electricity markets often have producers who exercise market power. The standard way to model market power in an oligopoly with a competitive fringe is by using Mixed Complementarity Problems (MCPs) and conjectural variations. However, such models can lead to myopic (sub-optimal) behaviour for oligopolists. We first build on existing literature to show that an oligopoly with a competitive fringe where all firms have investment decisions will also lead to myopic behaviour when modelled using MCPs with conjectural variations. To overcome this issue, we develop an Equilibrium Problem with Equilibrium Constraints (EPEC) to model such an electricity market structure. The EPEC models two types of players: price-making firms, who have market power, and price-taking firms, who do not. Our model is the first in the literature to consider an oligopoly with a competitive fringe where all firms have investment decisions. Our results indicate that an EPEC can model investment decisions in an oligopoly with a competitive fringe more credibly and thus overcome the myopic behaviour observed in MCPs. The EPEC found multiple equilibria for investment decisions and firms’ profits. Despite this, market prices and consumer costs were found to remain relatively constant across the equilibria. A further contribution of the modelling approach is that it shows how it may be optimal for price-making firms to accept losses in some time periods in order to disincentivize price-taking firms from investing further into the market. We conclude our paper with a discussion of the computational limitations of our approach.

Calmness instead of panicking: a reverse strategy to fight a crocodile attack using downside risk

PurposeHeuristics are a less complex and more understandable way to a more straightforward, astute and brisk basic decision-making strategy. The purpose of this study is the development of a rule of thumb called the “Crocodile rule” based on downside risk.Design/methodology/approachThe crocodile rule is developed and tested in two steps by using data in the form of stock portfolios of the Pakistan Stock Exchange from January 2000 to November 2017. In the first phase of the study, researchers have forecasted the probabilities, while in the second phase, the researchers have used these probabilities to test the crocodile rule.FindingsThe findings show the acceptance of the null hypothesis, forecasting error for all categories of stocks for the first phase. The results also show that the minimum recovery chance is 58%, and the maximum recovery chance is 81% with an overall average of 69% chance of recovery. All recovery probabilities are above 50% for all portfolios; this is particularly impressive for a volatile market like Pakistan.Research limitations/implicationsThe study also proposes another performance measure such as “value-at-risk” and compare it with present results to yield better outcomes. Furthermore, other categories of stock like profitability and growth can be tested as well.Practical implicationsThe practical application of this rule is a choice between a “Buy-and-hold” strategy and showing myopic behavior as another extreme.Originality/valueThis pioneering research focuses on the development of the “Crocodile rule” by using the lower partial moments as a proxy of downside risk. This research adds value to the existing literature on performance measures. Furthermore, it also highlights and indicates which strategy should be used by the investors in case of falling trends in the market.

Director co‐option and the cash conversion cycle

AbstractThis study examines whether co‐opted directors degrade or improve working capital efficiency. We find strong evidence that firms with more co‐opted boards exhibit lower cash conversion cycles and so are more efficient at managing working capital. After controlling for other factors, board co‐option reduces the length of the cash conversion cycle by about −1.2%, whereas the co‐option of independent directors reduces the cycle by nearly −2.0%. These results persist even after addressing endogeneity and are robust to alternate measures of the cash conversion cycle. In general, our study lends credence to the argument that co‐option reduces managerial myopic behavior as it reduces the likelihood of dismissal and so motivates managers to make better investment decisions that may improve firm proficiency.

Behavior Choice and Emission Reduction in a Dynamic Supply Chain with a Capital-Constrained Retailer

This paper studies the dynamic optimization of a low-carbon supply chain consisting of a manufacturer and a capital-constrained retailer. Considering market randomness and accumulation of production experience, a Stackelberg differential game model is constructed. In the game, the manufacturer is the leader and its pricing and emission reduction strategies over time are deduced in farsighted and myopic behaviors, respectively. In both behaviors, the emission reduction increases over time and a relatively low/high carbon price leads to skimming/penetrating pricing strategy of the manufacturer. Numerical study shows that the manufacturer must adopt a farsighted behavior for profit seeking except that consumers’ low-carbon awareness is quite low, and the retailer also prefers the manufacturer to adopt this behavior. Increasing carbon price and consumers’ low-carbon awareness benefits the manufacturer rather than the retailer. The governments can take measures to raise the carbon price to reduce the environmental impact.

Do firms practicing integrated reporting engage in less myopic behavior? International evidence on opportunistic earnings management

AbstractResearch Question/IssueEarnings management is often perceived as a typical response to managers' short‐term objectives at the expense of long‐term benefits. However, this is not aligned with the most recent development in corporate reporting—integrated reporting (IR)—which encourages long‐term orientation and a trustworthy, honest, and ethical corporate culture. We thus examine whether firms practicing IR to a greater extent exhibit lower levels of earnings management.Research Findings/InsightsUsing multiple IR measures and an international sample of 19,926 firm‐year observations from 2008 to 2015, we document that while firms practicing IR engage in less accrual‐based earnings management, they do resort to real activities earnings management. Such opportunistic earnings management behavior is most pronounced when firms' incentive to manage earnings is high. We also show that opportunistic earnings management behavior is moderated in countries and regions where IR is mandatory, where capital markets are more developed, and where financial reporting is less frequent.Theoretical/Academic ImplicationsOur study contributes to the growing literature on whether IR is an effective governance tool in constraining earnings management behavior. The results show that the institutional environment plays an essential role in enabling corporate reporting initiatives such as IR to affect substantive internal changes rather than being used opportunistically.Practitioner/Policy ImplicationsFirms that practice IR to a greater extent are associated with a lower level of earnings management in countries where IR is mandatory, which contributes to the policy debate on mandating IR.

Human Capital resource as cost or investment: A market-based analysis

This study empirically investigates the myopic behavior of the stock market toward firms’ human capital resource investment, paying particular attention to two key proxies: human resource expenditure and the firm value added allocated to the employees. Focusing on human capital resource investment decisions’ alignment with near versus longer-term emphasis by investors, we examine firms listed in the Financial Times Stock Exchange (FTSE) 100 over a five-year period using an established accounting-based valuation model. Our results show that human capital investment discourse leads to overweighting of the forecasted longer-term earnings in the apportionment of share price constituents, suggesting that investors consider investment in employees to generate more return in the longer-term. Additionally, our findings prove that investors respond to firm level human capital resource as an investment generating more return in the longer-term. This emphasises the importance of communicating human capital resource investment information that accurately reflects the firm value creation via employees in external financial reporting.

Optimal Inter-Organization Control of Collaborative Advertising with Myopic and Far-Sighted Behaviors.

This paper investigates the optimal inter-organization control of collaborative advertising considering the myopic and far-sighted behaviors. Taking a two-echelon supply chain as an example, four kinds of differential game models including myopic Stackelberg game, far-sighted Stackelberg game, myopic cooperative game and far-sighted cooperative game are studied. The results show that the optimal advertising efforts of both manufacturer and retailer in the myopic situation decrease with time. But they remain constant in the far-sighted situation. The Pareto improvement applies to both game players from the non-cooperative game to the cooperative game. The numerical analyses are conducted to further investigate the theoretical results and to guide the inter-organization control of collaborative advertising in practice.

Does passive investment have a positive governance effect? Evidence from index funds ownership and corporate innovation

Using Chinese listed companies' data from 2007 to 2017, this study finds that companies with a higher proportion of index fund ownership are more innovative, implying that passive institutional investors positively influence company governance. The effect is stronger in private firms, high-tech firms, and firms in high marketization regions and prominent mainly in large-cap index funds. Index fund ownership reduces the stock turnover rate, stabilizes shareholder structure, and lowers managers turnover rates, mitigating managers’ myopic behavior and boosting innovation. This study documents empirical evidence on the positive effect of passive investors on corporate governance from the perspective of corporate innovation.

Why is Quality Improvement so Challenging? A Viable Systems Model Perspective to Understand the Frustrations of Healthcare Quality Improvement Managers

The challenges facing Quality Improvement Managers (QIMs) are often understood and addressed in isolation from wider healthcare organisation within which quality improvement initiatives are embedded. We draw on Stafford Beer's Viable System Model (VSM) to shed light on how the viability of quality improvement depends on the effective functioning of five critical quality improvement systems and the extent to which these systems are integrated within the healthcare organisation. These systems are System 1 (Operations), System 2 (Coordination), System 3 (Operational Control), System 4 (Development) and System 5 (Policy).Our analysis draws on interviews with 56 QIMs working in 15 of New Zealand's 20 District Health Boards. We use VSM to identify the sources of problems in QI implementation. These include changes in direction for QI initiatives; myopic behaviour resulting from fragmented systems of care; difficulties in managing and monitoring QI activities given variable staff engagement and inadequate resourcing; pressure for quick results rather developing QI capabilities; and a lack of strategic embeddedness.A viable QI system requires QI approaches that are (1) implemented at an organisation-wide level; (2) well-resourced and carefully monitored; (3) underpinned by a long-term vision; and (4) supported by QIMs with the necessary power and influence to integrate QI subsystem within the wider healthcare organisation.

The Impact of Corporate Social Responsibility on the Managers' Behaviors in Companies Listed on the Tehran Stock Exchange

Corporate social responsibility (CSR) is a fundamental factor for the survival of any organization. Companies and institutions are active in a society that provides them various opportunities to earn profits and realize their goals. The increasing importance of corporate social responsibility and the costs required by companies to operate and participate in these issue has led to the purpose of this study to investigate the impact of corporate social responsibility on the managers' behaviors in companies listed on the Tehran Stock Exchange. This study is based on purpose, application and data analysis in the field of causal descriptive studies. In this study, the reflection of managers’ myopic and optimistic behaviors is considered as managers' behaviors. Therefore, two hypotheses were developed to investigate this issue, and data from 174 listed companies were analyzed from 2008 to 2018. The regression model of the research was evaluated using a panel data method with a fixed-effects approach and logistic regression method. The result showed that the fulfillment of corporate social responsibility has a significant negative effect on the optimistic behavior of managers and decreases this type of behavior by managers. On the other hand, the results confirmed that accomplishing corporate social responsibility does not have a significant effect on managers' myopic behavior.