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Corporate capital budgeting and CEO turnover

  • Hornstein, Abigail S.

When a firm has minimal agency and informational asymmetry problems it should make efficient capital budgeting decisions. Many firms over-invest prior to CEO turnover, halt investments in the period surrounding the turnover, and then greatly increase their level of expenditures. Empirical analysis of the cross-sectional and inter-temporal variation in the quality of firms' corporate capital budgeting decision reveals that the impact of CEO turnover is asymmetric between under- and over-investing firms, and this complements the larger literature using average firm-wide performance measures. Firms are more likely to have forced turnovers when there is more over-investment prior to the turnover, and these firms make more efficient investment decisions subsequently. Board influence is largely insignificant prior to a CEO turnover but is consistently associated with higher levels of investment subsequently.

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File URL: http://www.sciencedirect.com/science/article/pii/S0929119912001150
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Article provided by Elsevier in its journal Journal of Corporate Finance.

Volume (Year): 20 (2013)
Issue (Month): C ()
Pages: 41-58

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Handle: RePEc:eee:corfin:v:20:y:2013:i:c:p:41-58
DOI: 10.1016/j.jcorpfin.2012.11.003
Contact details of provider: Web page: http://www.elsevier.com/locate/jcorpfin

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