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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

Amy K. Dittmar

University of Michigan at Ann Arbor - The Stephen M. Ross School of Business

Ran Duchin

University of Washington - Michael G. Foster School of Business

Date Written: May 12, 2015

Abstract

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

Dittmar, Amy K. and Duchin, Ran, Looking in the Rear View Mirror: The Effect of Managers’ Professional Experience on Corporate Financial Policy (May 12, 2015). Forthcoming, Review of Financial Studies. Available at SSRN: https://ssrn.com/abstract=2142465 or http://dx.doi.org/10.2139/ssrn.2142465

Amy Dittmar (Contact Author)

University of Michigan at Ann Arbor - The Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
734-764-3108 (Phone)

HOME PAGE: http://webuser.bus.umich.edu/adittmar/

Ran Duchin

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
United States

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