IDEAS home Printed from https://ideas.repec.org/a/eee/glofin/v58y2023ics1044028323000819.html
   My bibliography  Save this article

Powerful CEOs and investment efficiency

Author

Listed:
  • Chowdhury, Md Raihan Uddin
  • Xie, Feixue
  • Hasan, Md Mahmudul

Abstract

This study investigates whether chief executive officers (CEOs) with excessive power make efficient investment decisions. We employ a comprehensive measure of CEO power and find that highly powerful CEOs tend to reduce investment efficiency by increasing overinvestment. This inefficiency is more pronounced with strong information asymmetry, agency problems, and product market competition. We also find that a firm's operation complexity and the presence of effective internal and external governance can help mitigate investment inefficiency; however, when most independent directors are co-opted or powerful CEOs are recruited from outside the firm, the investment inefficiency deteriorates. Moreover, inefficiency and overinvestment tend to increase with CEO tenure, the level of CEO power, and financial constraints faced by the firm. These findings shed light on the complex dynamics between CEO power, investment decisions, and various factors influencing their effectiveness.

Suggested Citation

  • Chowdhury, Md Raihan Uddin & Xie, Feixue & Hasan, Md Mahmudul, 2023. "Powerful CEOs and investment efficiency," Global Finance Journal, Elsevier, vol. 58(C).
    • Handle: RePEc:eee:glofin:v:58:y:2023:i:c:s1044028323000819
    DOI: 10.1016/j.gfj.2023.100886
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1044028323000819
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.gfj.2023.100886?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Keywords

    Investment efficiency; Powerful CEOs; Information asymmetry; Agency problems; Corporate governance;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:glofin:v:58:y:2023:i:c:s1044028323000819. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620162 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.