CEO Investment Cycles
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)
September 28, 2015
Charles A. Dice Center Working Paper No. 2013-12
Fisher College of Business Working Paper No. 2013-03-12
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.
Number of Pages in PDF File: 72
Keywords: Investment, disinvestment, non-performance motivated CEO turnover, CEO control of the board, overinvestment.
JEL Classification: G32, G34, M12, M51
Date posted: August 16, 2013 ; Last revised: October 1, 2015