CEO Career Horizon and Tenure: Future Performance Implications under Different Contingencies
30 Pages Posted: 24 Sep 2007 Last revised: 28 Sep 2011
Date Written: September 12, 2011
Abstract
This paper examines the influence of CEO career horizon and tenure on the future performance of firms. Specifically, we argue that CEOs with shorter career horizons (as measured by their age) will adopt risk-averse strategies that will, on average, adversely influence future firm performance. Further, we argue that at high levels of CEO ownership, this relationship is exacerbated due to the accompanying power that comes with high ownership. In terms of CEO tenure, we propose that CEOs’ paradigms will become increasingly obsolete as their tenure increases with this process hurting future performance in dynamic industries. However, such performance declines may not occur in more stable industries. Using a sample of US-based firms from the S&P 500, we find support for our arguments when examining the future Return on Assets of firms. With market-based performance, we find support for only our career horizon arguments.
Keywords: CEO Career Horizon, CEO Paradigm, Equity Ownership Power, Industry Dynamism, Financial Performance
JEL Classification: M10
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