Managerial Reputation and Corporate Investment Decisions

This review examines the incentives of managers to use investment choices as a tool for building their personal reputations or the reputation of their firms. These incentives come in three main forms: visibility bias, which encourages a manager to try to make short-term indicators of success look better; resolution reference which encourages a manager to try to advance the arrival of good news and delay bad news; and mimicry and avoidence, which encourages a manager to take the actions that the best managers are seen to do, and to avoid the actions the worst managers are seen to do.