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CEO tenure and labor investment efficiency

Author

Listed:
  • James, Hui Liang
  • Jiraporn, Pornsit
  • Wang, Hongxia

Abstract

We examine the impact of CEO tenure on corporate labor investment efficiency. While some studies show that CEO entrenchment increases in tenure (e.g., Hermalin and Weisbach, 1998), others argue that managerial expertise builds over time in the office (e.g., Graf-Vlachy et al., 2020). Using a large sample of U.S. firms from 1992 to 2018, we find that longer-tenured CEOs are associated with more efficient labor investment. This finding is robust to alternative measures of labor investment inefficiency, subsample analyses, and various model specifications. Further analysis shows that longer-tenured CEOs mitigate both under- and over-investment in labor problems characterized by under-hiring and under-firing, respectively. The positive effect of CEO tenure on labor investment efficiency is stronger in human capital-intensive firms and those with greater operational uncertainty. We conclude that advanced managerial expertise enables longer-tenured CEOs to invest in labor more accurately.

Suggested Citation

  • James, Hui Liang & Jiraporn, Pornsit & Wang, Hongxia, 2025. "CEO tenure and labor investment efficiency," Journal of Contemporary Accounting and Economics, Elsevier, vol. 21(2).
    • Handle: RePEc:eee:jocaae:v:21:y:2025:i:2:s1815566925000220
    DOI: 10.1016/j.jcae.2025.100475
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    More about this item

    Keywords

    CEO tenure; Managerial expertise; Labor investment efficiency (inefficiency); Abnormal net hiring; Expected level of labor investment;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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