Stock Options and CEO Temporal Orientation: The Behavioral Agency Model and Inter-Temporal Choice

We extend the behavioral agency model (BAM) to the study of temporal orientation and agent short-termism. Short-termism is a particular type of temporal orientation that has long been scorned for its cost to long term value creation; a view underlined by the belief that it was a significant contributor to the severity of the Great Recession. Yet little is known about how executives make inter- temporal choices when making strategic decisions. Advancing BAM and temporal orientation literature, we find that temporal orientation is more likely to be longer-term in the presence of current option wealth, an effect accentuated by available slack; yet short-termism is more likely when the CEO estimates greater prospective gains due to successful risk taking. We find that both effects are dependent upon – or specifically, attenuated by – the levels of resource slack available to the CEO. This provides support for BAM’s utility beyond predicting magnitude of strategic investments, which has been the focus of prior...