Corporate Capital Budgeting and CEO Turnover

Posted: 20 Aug 2014

Date Written: November 20, 2012


When a firm has minimal agency and informational asymmetry problems it should make efficient capital budgeting decisions. Many firms over-invest prior to CEO turnover, halt investments in the period surrounding the turnover, and then greatly increase their level of expenditures. Empirical analysis of the cross-sectional and inter-temporal variation in the quality of firms' corporate capital budgeting decision reveals that the impact of CEO turnover is asymmetric between under- and over-investing firms, and this complements the larger literature using average firm-wide performance measures. Firms are more likely to have forced turnovers when there is more over-investment prior to the turnover, and these firms make more efficient investment decisions subsequently. Board influence is largely insignificant prior to a CEO turnover but is consistently associated with higher levels of investment subsequently.

Keywords: capital budgeting, marginal q, CEO turnover

JEL Classification: G31, G32, G34, M12, M51

Suggested Citation

Hornstein, Abigail S., Corporate Capital Budgeting and CEO Turnover (November 20, 2012). Journal of Corporate Finance, Vol. 20, No. 1, April 2013, Available at SSRN:

Abigail S. Hornstein (Contact Author)

Wesleyan University ( email )

Middletown, CT 06459
United States

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