RENEGOTIATION, INVESTMENT HORIZONS, AND MANAGERIAL DISCRETION

In this article, we show that the evolution of managerial entrenchment can distort investment horizons. Both myopic and hypermetropic distor tions can arise. The direction of these distortions is determined by t he locus of control, and their pervasiveness by the degree of manageme nt entrenchment. Myopic distortions occur when shareholders directly d etermine investment policy. Hypermetropic distortions occur when manag ement sets investment policy. The inherent hypermetropic bias of manag ers is mitigated by front-loaded compensation packages and pension pla ns tied to short-run performance. These distortions in investment hori zons have implications for the allocation of corporate control.