R&D Spending Among Short-Horizon CEOs: A Re-Examination

41 Pages Posted: 6 Jan 2010

See all articles by Richard A. Cazier

Richard A. Cazier

University of Texas at El Paso - Department of Accounting

Date Written: October 20, 2009


Dechow and Sloan (1991) report that CEOs curtail R&D expenditures in their final years in response to accounting-based compensation incentives. However, substantial institutional changes both in CEO compensation and in firms’ reporting environments decrease the likelihood that R&D curtailment in CEOs’ final years continues to persist. Despite these institutional changes, several recent papers provide mixed evidence with regards to whether CEOs continue to curtail R&D in their final years, and concern regarding R&D curtailment among “short-horizon” CEOs continues to persist. This paper performs direct and powerful tests for evidence of opportunistic curtailment of R&D in CEOs’ final years. Examining a sample of 203 retiring CEOs, I find that R&D spending in CEOs’ pre-retirement years is neither statistically nor economically different from R&D spending in those same firms during other years. I also find no evidence that abnormal R&D expenditures in CEOs’ final years are associated with CEOs’ accounting-based compensation. I show that results of recent studies documenting R&D curtailment among CEOs nearing retirement are likely induced by their cross-sectional research design.

Keywords: Horizon problem, CEO pensions, R&D, Research and development, CEO succession

JEL Classification: G34, M41, J33

Suggested Citation

Cazier, Richard A., R&D Spending Among Short-Horizon CEOs: A Re-Examination (October 20, 2009). Available at SSRN: https://ssrn.com/abstract=1532270 or http://dx.doi.org/10.2139/ssrn.1532270

Richard A. Cazier (Contact Author)

University of Texas at El Paso - Department of Accounting ( email )

500 W University Ave
El Paso, TX 79902
United States
915-747-7755 (Phone)

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