Charles A. Dice Center Working Paper No. 2013-12
72 Pages Posted: 16 Aug 2013 Last revised: 1 Oct 2015
Date Written: September 28, 2015
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: 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
By Kevin Murphy