3 remedies to reduce CEOs’ myopic behaviour: Research findings

Effective internal governance, CEO contractual protection and longer pay duration are three remedies to address CEOs’ myopic behaviour based on the research conducted by Professor Cheng Qiang and his teams. He presented the topic on ‘Corporate Governance and Corporate Reporting & Disclosure’ at the latest segment of SMU’s Profiles of Excellence Lecture Series held on 6 September 2013.

Addressing the agency problems, particularly the myopic behaviour of CEOs, had been one of the most important issues for shareholders, regulators and researchers. Professor Cheng discussed how corporate governance could affect corporate reporting and disclosure based on the findings of some of his recent works. During his lecture, he focused on several corporate governance mechanisms that could address the agency problems between managers and shareholders.

Based on his research findings, having influential and younger subordinate executives in the company, providing CEOs with contractual protection like severance pay, and increasing the horizon of CEO compensation can reduce CEOs’ fixation on short-term performance targets and motivate them to enhance the long-term value of the firm. These benefits manifest as more long-term investments, fewer value-destroying activities and more transparent disclosure. You can access Professor Cheng’s slides and video presentation here.

Cheng Qiang is a Professor of Accounting of the School of Accountancy. Professor Cheng is also the School’s Associate Dean of Research and Director of the School of Accountancy Research (SOAR). He is awarded the Lee Kuan Yew Fellow for Research Excellence in 2013-2014. He conducts research on various financial reporting and disclosure issues, including how corporate governance and family ownership affect corporate decisions, how accounting information for valuation purposes, how executives affect financial reporting and disclosure decisions for their self-interests, and how security analysts help disseminate information in the capital markets.