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CEO decision horizon and firm performance: An empirical investigation

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  • Antia, Murad
  • Pantzalis, Christos
  • Park, Jung Chul
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    Abstract

    We investigate the effect of top managers' myopia on firms' market valuation. We devise a measure of expected CEO tenure as a proxy for the length of CEO decision horizon. After accounting for the endogenous nature of CEO horizon, our empirical tests show that shorter CEO horizon is associated with more agency costs, lower firm valuation and higher levels of information risk. The results are consistent with the notion that a short CEO decision horizon is indicative of preference for investments that offer relatively faster paybacks at the expense of long-term value creation.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Corporate Finance.

    Volume (Year): 16 (2010)
    Issue (Month): 3 (June)
    Pages: 288-301

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    Handle: RePEc:eee:corfin:v:16:y:2010:i:3:p:288-301

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    Web page: http://www.elsevier.com/locate/jcorpfin

    Related research

    Keywords: CEO decision horizon Firm performance Information risk Agency costs;

    References

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    Citations

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    Cited by:
    1. Kim, Incheol & Pantzalis, Christos & Park, Jung Chul, 2013. "Corporate boards' political ideology diversity and firm performance," Journal of Empirical Finance, Elsevier, vol. 21(C), pages 223-240.
    2. Raluca-Georgiana Moscu, 2013. "The Impact of Gender and Age Diversity on Company Performance," Knowledge Horizons - Economics, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 5(4), pages 215-219, December.
    3. Serfling, Matthew A., 2014. "CEO age and the riskiness of corporate policies," Journal of Corporate Finance, Elsevier, vol. 25(C), pages 251-273.
    4. Hou, Wanrong & Li, Sali & Priem, Richard L., 2013. "How do CEOs matter? The moderating effects of CEO compensation and tenure on equity ownership in international joint ventures," Journal of International Management, Elsevier, vol. 19(2), pages 138-151.
    5. Colonnello, Stefano & Curatola, Giuliano & Ngoc Giang Hoang, 2014. "Executive compensation structure and credit spreads," SAFE Working Paper Series 60, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.
    6. Cassell, Cory A. & Huang, Shawn X. & Manuel Sanchez, Juan & Stuart, Michael D., 2012. "Seeking safety: The relation between CEO inside debt holdings and the riskiness of firm investment and financial policies," Journal of Financial Economics, Elsevier, vol. 103(3), pages 588-610.
    7. repec:hit:hcfrwp:2 is not listed on IDEAS
    8. Berezinets, Irina & Ilina, Yulia & Muravyev, Alexander, 2011. "CEO and Board Characteristics as Determinants of Private Benefits of Control: Evidence from the Russian Stock Exchange," IZA Discussion Papers 6256, Institute for the Study of Labor (IZA).
    9. Goodall, Amanda H., 2012. "A Theory of Expert Leadership," IZA Discussion Papers 6566, Institute for the Study of Labor (IZA).

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