A good manager or a bad agent? Military CEOs and tunneling

The literature on tunneling generally suggests that controlling shareholders expropriate minority shareholders by assuming executives play an assistant role in the process. We explore whether the military background of CEOs makes a difference in tunneling. The findings suggest that firms with CEOs who have served in the military exhibit less tunneling than those whose CEOs did not have previous military experience. Additional analysis suggests that the negative relation between military CEOs and tunneling is more salient for firms with large shareholding controlling shareholders, without seasoned equity offering (SEO) plans, audited by non-Big Four accounting firms, or have fewer analysts following them. Interestingly, we find that, by restraining a controlling shareholder’s tunneling, a military CEO firm has better firm value, lower perk consumption, and more positive media coverage. However, the military CEO also pays the price of being more likely to get dismissal than a non-military CEO. Hence, our evidence suggests that CEOs, especially those with military background, may not always follow controlling shareholders to expropriate minority shareholders.