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How Do CEOs Make Investment Decisions in Their Early Years of Tenure? Evidence from Investment Efficiency
|Title:||How Do CEOs Make Investment Decisions in Their Early Years of Tenure? Evidence from Investment Efficiency|
show 1 moreInformation asymmetry
|Date Issued:||03 Aug 2019|
|Abstract:||Career concerns are escalated during the early years of a CEO’s tenure because the market is uncertainty about the new CEO’s ability and the compatibility between his or her skills and the firm’s strategic needs. This study examines whether such increased career concerns induce investment inefficiency during the early years of a CEO’s tenure. I find that underinvestment is more likely to happen in the early years than in the later years, and that the underinvestment problem is most evident when the CEO is externally appointed, holds an interim position, and has low managerial ability, and when the firm has a higher level of information asymmetry and lower financial reporting quality. I also find that firms are less likely to issue debts during those early years, which suggests that a reduced supply of capital can contribute to the underinvestment phenomenon in the early years of a CEO’s tenure. Together, these findings indicate that during the early years of a CEO’s service, especially in contexts where career concerns are high and the information environment is more asymmetric, investment inefficiency is more likely to occur.|
|Appears in Collections:||
17 Management Accounting: Executive Compensation/Corporate Governance|
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