East, West, Home's Best: Are Local CEOs Less Myopic?

60 Pages Posted: 4 Oct 2017

See all articles by Shufang Lai

Shufang Lai

Southern University of Science and Technology

Zengquan Li

Shanghai University of Finance and Economics - School of Accountancy

Yong George Yang

The Chinese University of Hong Kong (CUHK) - Faculty of Business Administration

Date Written: October 3, 2017

Abstract

Place attachment theories suggest that people develop mutual caretaking relationships with their birthplaces. We hence test whether CEOs working near their childhood homes (i.e., local CEOs) are less likely than nonlocal CEOs to make myopic operating decisions. Our empirical results show that local CEOs are less likely to cut R&D expenditure to avoid earnings decreases or meet analyst consensus forecasts. Such effects are stronger when the firm’s operations involve more local business interests, i.e., when the firm’s business is more concentrated in the state and the state’s residents have a higher inclination to invest in local firms. The effects are also more significant when the state’s residents have stronger local social bonds, i.e., when the state has low population mobility and more social capital. In addition, local CEOs do not develop myopia in their last years of office. In a broader setting of testing operational myopia, we find that local CEOs pay more state tax (but not more federal tax) and perform better in corporate social responsibility (CSR) in terms of protecting the environment, caring for their employees, and contributing to their community.

Keywords: Local CEO, Corporate myopia, Short-termism

JEL Classification: G00, G30, M41

Suggested Citation

Lai, Shufang and Li, Zengquan and Yang, Yong George, East, West, Home's Best: Are Local CEOs Less Myopic? (October 3, 2017). Available at SSRN: https://ssrn.com/abstract=3047568 or http://dx.doi.org/10.2139/ssrn.3047568

Shufang Lai

Southern University of Science and Technology ( email )

No 1088, xueyuan Rd.
Xili, Nanshan District
Shenzhen, Guangdong 518055
China

Zengquan Li

Shanghai University of Finance and Economics - School of Accountancy ( email )

No. 777 Guoding Road, Shanghai
Shanghai, 200433
China

Yong George Yang (Contact Author)

The Chinese University of Hong Kong (CUHK) - Faculty of Business Administration ( email )

Shatin, N.T.
Hong Kong

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