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Can organizational identification mitigate the CEO horizon problem?

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  • Abernethy, Margaret A.
  • Jiang, Like
  • Kuang, Yu Flora

Abstract

CEOs of retirement age are likely to exhibit a “horizon problem,” whereby they are reluctant to make decisions that are beneficial to the firm in the long term but potentially costly to the CEOs' personal wealth in the short term. We predict that a CEO with strong organizational identification (OI) will be less likely to behave opportunistically. Our results are consistent with our expectation when we examine three types of decisions that reflect the CEO horizon problem. Specifically, we find that retiring CEOs with strong OI are less likely to reduce research and development investments or decrease the firm's commitment to corporate social responsibility. Retiring CEOs with strong OI also behave less opportunistically when making voluntary disclosures; namely, they issue fewer management earnings forecasts in their last year of employment. Our findings indicate that cultivating a CEO's OI can be an effective way to mitigate her horizon problem.

Suggested Citation

  • Abernethy, Margaret A. & Jiang, Like & Kuang, Yu Flora, 2019. "Can organizational identification mitigate the CEO horizon problem?," Accounting, Organizations and Society, Elsevier, vol. 78(C).
    • Handle: RePEc:eee:aosoci:v:78:y:2019:i:c:s0361368219300431
    DOI: 10.1016/j.aos.2019.07.002
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