East, West, Home's Best: Are Local CEOs Less Myopic?
60 Pages Posted: 4 Oct 2017
Date Written: October 3, 2017
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: Suggested Citation