Firm and Managerial Incentives to Manipulate the Timing of Project Resolution

David Hirshleifer, Tarun Chordia, and Sonya S. Lim

March 2001


A manager who wants to be viewed favorably has an incentive to advance or delay the arrival of information about his rm’s protability. In the model, a high ability manager tries to advance resolution of a likely-favorable outcome, while a low ability manager may defer resolution. Such manipulation of information arrival causes greater investment in execution projects (which tend to resolve early) than exploratory projects (which tend to resolve late), and aects investment in hastening or retarding project resolution. In contrast with previous literature, in some cases managers may secretly overinvest. The model oers empirical implications about innovative versus conventional investments, associated stock price reactions, and corporate control. The theory also implies a perverse sorting of high ability managers to conventional activities and low ability managers to visionary enterprises.

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