This paper examines the argument that takeover pressure can be detrimental because it leads managers to prioritize short-term profits over long-term interests. The author, Jeremy C. Stein, explores the concept of "managerial myopia," where managers focus on boosting current earnings to prevent undervaluation and potential takeover at an unfavorable price. The paper develops a formal model to analyze this phenomenon, considering factors such as shareholder attitudes, the extent of inside information held by corporate raiders, and the managers' concerns about retaining control. The model is structured over three periods, with managers of Acme Oil Company learning the amount of oil they have at time 1 and deciding whether to sell it immediately or wait until time 3. The key issue is whether managers will engage in signaling behavior to boost current earnings, which can lead to wasteful signaling and reduced social welfare. The paper examines equilibria under both uninformed and informed raiders, finding that the presence of takeover threats can lead to both pooling and separating equilibria, depending on the cost of takeovers and the beliefs of shareholders. The results suggest that managerial myopia can be consistent with rational shareholder behavior, as managers may act in their own interests while appearing to act in the shareholders' best interests. The paper also discusses the implications for policy, noting that while managerial myopia can be welfare-reducing, it may not always be desirable to ban takeover activity. The paper concludes by discussing empirical evidence and the potential for regulatory interventions to address managerial myopia.This paper examines the argument that takeover pressure can be detrimental because it leads managers to prioritize short-term profits over long-term interests. The author, Jeremy C. Stein, explores the concept of "managerial myopia," where managers focus on boosting current earnings to prevent undervaluation and potential takeover at an unfavorable price. The paper develops a formal model to analyze this phenomenon, considering factors such as shareholder attitudes, the extent of inside information held by corporate raiders, and the managers' concerns about retaining control. The model is structured over three periods, with managers of Acme Oil Company learning the amount of oil they have at time 1 and deciding whether to sell it immediately or wait until time 3. The key issue is whether managers will engage in signaling behavior to boost current earnings, which can lead to wasteful signaling and reduced social welfare. The paper examines equilibria under both uninformed and informed raiders, finding that the presence of takeover threats can lead to both pooling and separating equilibria, depending on the cost of takeovers and the beliefs of shareholders. The results suggest that managerial myopia can be consistent with rational shareholder behavior, as managers may act in their own interests while appearing to act in the shareholders' best interests. The paper also discusses the implications for policy, noting that while managerial myopia can be welfare-reducing, it may not always be desirable to ban takeover activity. The paper concludes by discussing empirical evidence and the potential for regulatory interventions to address managerial myopia.