The Effect of Investors' Destructive Behaviors on the Managers’ Myopia

Investors' behavioral patterns are among the important and new conceptsfocused on by many academic researchers and analysts of behavioral finance in recent years. It emphasizes that the investors' decisions and their destructive behavior could be affected by other investors' attitudes, feelings, emotions, and decisions. The investors' destructive behavior affects managers' decision-making because they would change the financial policies of the companies to meet the investors' expectations. Therefore, the current study is aimed at investigating the impact of investors' destructive behavior on managers' myopia in companies listed on the Tehran Stock Exchange. For this purpose, the effects of three destructive behaviors of investors, including myopic, emotional, and herd behaviors on the managers' myopia were investigated.
The required data were collected from the financial information of 140 companies admitted to the Tehran Stock Exchange in 10 years (i.e., their financial statement information from the Iranian calendar year of 1390 to 1399). To test the hypotheses of the research, logistic regression models were used by applying the pooled data method.
The findings from testing research hypotheses indicate that in Tehran Stock Exchange, investors' myopic, emotional, and collective behaviors have a positive and significant impact on the managers' myopia. It can be implied that with the increase in the investors' destructive behavior (investors' myopic, emotional, and herd behaviors), the managers' myopia is also intensified.
The results of the research demonstrate that the investors' short-sightedness and their looking for short-term profits, put pressure on managers and consequently the managers' myopia increases. Also, the investors' emotional and herd behavior put pressure on managers to reduce costs that have long-term benefits and profitability to increase the short-term ones. Therefore, the behavioral tendencies of the company managers would be influenced by those of the investors and in response to their destructive behaviors. It means that, instead of focusing on long-term goals and plans for the company, managers focus on short-term goals and make short-term decisions to earn short-term profit. Managers who make myopic decisions to increase the current earnings in a short period to meet their investors' expectations, do not pay attention to the future interests and it would have negative effects on the financial structure and the performance of the company. It is because reducing the marketing, research, and development costs in the current competitive market can lead to a decrease in the competitiveness of the companies in the long term.