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Star CEOs and investment efficiency: Evidence from China

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  • Zhang, Lida
  • Cai, Wenwu

Abstract

This study investigates whether star chief executive officers (CEOs) make more efficient investment decisions after winning a prestigious media award. Using data from Chinese A-share listed firms, we find that CEO awards significantly reduce the probability of corporate overinvestment and mitigate the magnitude of investment inefficiency; this effect is more pronounced for CEOs with high monetary compensation and in firms with weak internal governance and loose external monitoring. Additional evidence shows that star CEOs attract more media coverage than matched CEOs after winning awards, and CEO awards improve investment efficiency by reducing information asymmetry and enhancing reputation incentives. Collectively, our findings suggest that media-granted CEO awards encourage winning CEOs to boost their investment efficiency by reducing overinvestment.

Suggested Citation

  • Zhang, Lida & Cai, Wenwu, 2023. "Star CEOs and investment efficiency: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 82(C).
    • Handle: RePEc:eee:pacfin:v:82:y:2023:i:c:s0927538x23002160
    DOI: 10.1016/j.pacfin.2023.102145
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    Keywords

    Star CEOs; Overinvestment; Investment inefficiency; Media coverage;
    All these keywords.

    JEL classification:

    • 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
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups

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