A Model of Myopic Corporate Behaviour with Efficient Stock Markets and Optimal Management Incentive Programs.

Existing models of corporate "short-termism" rely on an exogenously imposed, suboptimal management objective function. This paper endogenizes both managers' concern for short-term stock prices and the resulting distorsions. We consider a standard agency problem between corporate managers and investors in which the short-term share price is determined before the manager has made her effort choice and therefore cannot be informative in the standard principal-agent sense.