CEO Investment Cycles

Charles A. Dice Center Working Paper No. 2013-12

Fisher College of Business Working Paper No. 2013-03-12

72 Pages Posted: 16 Aug 2013 Last revised: 1 Oct 2015

Yihui Pan

University of Utah - Department of Finance

Tracy Yue Wang

University of Minnesota - Twin Cities - Carlson School of Management

Michael S. Weisbach

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: September 28, 2015

Abstract

This paper documents the existence of a CEO Investment Cycle, in which disinvestment decreases over CEO tenure while investment increases, leading to “cyclical” firm growth in assets as well as in employment. The estimated variation in investment rate over the CEO cycle is of the same order of magnitude as the differences caused by business cycles or financial constraints. This investment cycle appears to reflect CEOs’ preference for investment growth, which leads to increasing investment quantity and decreasing investment quality over time as the CEO gains more control over his board.

Keywords: Investment, disinvestment, non-performance motivated CEO turnover, CEO control of the board, overinvestment.

JEL Classification: G32, G34, M12, M51

Suggested Citation

Pan, Yihui and Wang, Tracy Yue and Weisbach, Michael S., CEO Investment Cycles (September 28, 2015). Charles A. Dice Center Working Paper No. 2013-12; Fisher College of Business Working Paper No. 2013-03-12. Available at SSRN: https://ssrn.com/abstract=2307159 or http://dx.doi.org/10.2139/ssrn.2307159

Yihui Pan

University of Utah - Department of Finance ( email )

David Eccles School of Business
Salt Lake City, UT 84112
United States

Tracy Yue Wang

University of Minnesota - Twin Cities - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States

Michael S. Weisbach (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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