Does institutional short-termism matter with managerial myopia?

• Published in: Journal of business research Vol. 68; no. 4; pp. 845 - 850
• Main Authors: Chen, Yu-Fen, Lin, Fu-Lai, Yang, Sheng-Yung
• Format: Journal Article
• Language: English
• Published: New York Elsevier Inc 01.04.2015; Elsevier Sequoia S.A
• Subjects: Earnings; Earnings forecasting; Institutional investments; Institutional short-termism; Investment; Investment horizon; Management theory; Managerial myopia; Managers; Organizational behavior; Organizational behaviour; Portfolio turnover; R&D; R&D expenses; Research & development; Research & development expenditures; Research and development; Studies; U.S.A; United States > US; Taiwan; Managerial myopia; Investment horizon; R&D expenses; Portfolio turnover; Institutional short-termism
• ISSN: 0148-2963; 1873-7978
• DOI: 10.1016/j.jbusres.2014.11.039

Literature regarding the impact of institutional investors on firm's research and development (R&D) expenses supports that institutional ownership facilitates managerial discretion on R&D expenses in the US. However, the scenario may change when considering institutional investment horizon. This study investigates whether managerial myopic investments on R&D exist in an emerging market, Taiwan, and whether institutional investing exacerbates managerial myopic behavior. Results indicate that corporate managers cut R&D spending to meet short-term earnings goals in Taiwan. Domestic institutional short-termism will intensify managerial myopia. Conversely, foreign institutional ownership acts as a buffer to facilitate R&D.