Managerial myopia and corporate credit spreads

Using bond issuance data from listed companies, we demonstrate that firms with myopic management face substantially higher credit spreads, a pattern with both strong statistical and economic significance across multiple robustness checks. Myopic management tends to imprudently allocate longer-term funds to short-term projects, potentially prompting investors to demand higher credit premiums. The rise in credit spreads observed only in long-term bond issuances further reinforces our argument. Inefficient investment decisions made by myopic management, characterized by excessive short-term investments and insufficient long-term investments, may also account for elevated credit spreads. While effective corporate governance and enhanced external monitoring can help alleviate the adverse impacts of managerial myopia on corporate credit spreads, intensified industry competition and increased uncertainty may exacerbate these challenges. Encouragingly, the elevated credit spreads could prompt myopic management to adjust their business strategies, thereby mitigating the worsening economic consequences for the corporate.