CEO Decision Horizon and Firm Performance: An Empirical Investigation
41 Pages Posted: 20 Mar 2008
Date Written: March 17, 2008
Abstract
We investigate the effect of top managers' myopia on firms' market valuation. We devise a measure of expected CEO tenure as a proxy of the length of CEO decision horizon. After accounting for the endogenous nature of CEO horizon, our empirical tests show that it is significantly associated with agency costs and provide strong support for the hypotheses that the length of CEO decision horizon has a positive influence on firm value and a negative effect on information risk. The results are consistent with the notion that a short CEO decision horizon is indicative of preference for investments that offer relatively faster paybacks at the expense of long-term value creation.
Keywords: CEO decision horizon, Firm performance, Information risk, Agency costs
JEL Classification: G14, G34, D82
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Security Analysis, Agency Costs and Firm Characteristics
By John A. Doukas, Chansog (francis) Kim, ...
-
Security Analysis, Agency Costs, and Firm Characteristics
By John A. Doukas, Chansog (francis) Kim, ...
-
Security Analysis, Agency Costs and UK Firm Characteristics
By John A. Doukas, Christos Pantzalis, ...
-
Performance-Based Incentives for Internal Monitors
By Chris Armstrong, Alan D. Jagolinzer, ...
-
Managerial Ownership and Performance
By Chris Florackis, Alexandros Kostakis, ...
-
Further Evidence on the Value of Professional Investment Research
By Kenneth L. Stanley, Wilbur G. Lewellen, ...