Market Reaction to Capital Expenditures of Powerful CEOs

21 Pages Posted: 18 Sep 2011

See all articles by Anwar S. Boumosleh

Anwar S. Boumosleh

Lebanese American University

Elias Raad

Lebanese American University

Date Written: September 17, 2011

Abstract

It is controversial whether governance structure affects the value of the firm. This paper examines the sensitivity of firm value to capital expenditure under various levels of CEO power. The paper uses two measures of CEO power and finds that the greater the power of the CEO the less the increase in market value for a given increase in capital spending. The results are robust to the inclusion of firm and governance characteristics and indicate that the market is weary of investment decisions made by powerful CEOs.

Keywords: Agency problem, CEO power, capital expenditure

JEL Classification: G3, J33

Suggested Citation

Boumosleh, Anwar S. and Raad, Elias A, Market Reaction to Capital Expenditures of Powerful CEOs (September 17, 2011). Midwest Finance Association 2012 Annual Meetings Paper, Available at SSRN: https://ssrn.com/abstract=1929389 or http://dx.doi.org/10.2139/ssrn.1929389

Anwar S. Boumosleh (Contact Author)

Lebanese American University ( email )

P.O. Box 13-5053
Beirut
Lebanon
+961-1-786456 (Phone)

Elias A Raad

Lebanese American University ( email )

P.O. Box 36
Chouran-Beirut 1102 2801
Byblos
Lebanon

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