Measuring R&D Curtailment Among Short-Horizon CEOs
34 Pages Posted: 29 Sep 2011
Date Written: September 28, 2011
I review evidence produced by prior literature on CEO horizon problems and show that prior empirical findings are correlated with the research design employed. I find that evidence of R&D curtailment by CEOs as they approach retirement stems predominantly from cross-sectional correlations between CEO age or tenure and R&D spending. Using a broad sample of CEOs of S&P 1500 firms, I identify two factors that confound the cross-sectional relationship of firm R&D spending on CEO age or tenure which can lead to spurious inferences regarding the CEO horizon problem. I find that tracking R&D spending by the same CEOs over time produces no evidence of R&D curtailment. These results have research design implications for future researchers investigating the impact of shortened CEO career horizons on investment myopia.
Keywords: Horizon Problem, R&D Spending, Empirical Design
JEL Classification: G34, M41, J33
Suggested Citation: Suggested Citation