Looking in the Rear View Mirror: The Effect of Managers’ Professional Experience on Corporate Financial Policy
Forthcoming, Review of Financial Studies
61 Pages Posted: 7 Sep 2012 Last revised: 27 May 2015
Date Written: May 12, 2015
We track the employment history of over 9,000 managers to study the effects of professional experiences on corporate policies. Our identification strategy exploits exogenous CEO turnovers and employment in other firms. Firms run by CEOs who experienced distress have less debt, save more cash, and invest less than other firms, with stronger effects in poorly governed firms. Past experience has a stronger influence when it is more recent, occurs during salient periods of a managers’ career, or is associated with a negative rather than a positive outcome. We find similar effects on debt and cash, but not investment, for CFOs. The results suggest that policies vary with managers’ experiences and throughout their careers.
Keywords: CEO experience, style, leverage, cash, investment, behavioral finance
JEL Classification: G30, G31, G32
Suggested Citation: Suggested Citation