Reputation, Incentives, and Managerial Decision
David Hirshleifer
Ch. 26 of The New Palgrave Dictionary of Money and Finance, 1992
Abstract:
This paper reviews the biases induced by managers’ incentives to build his reputation or that of his firm and the resulting distortions in investment and operating decisions. This essay argues that reputation incentives can influence the initiation and termination of projects, the degree of conservatism, the timing of resolution of uncertainty and of cash flows, and conformist versus deviant behavior.
