CEOs on a Short Runway: Interim CEO and R&D Investment in China

60 Pages Posted: 18 Jan 2018

See all articles by Fei Wu

Fei Wu

Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF)

Jing Yu

The University of Western Australia - Department of Accounting and Finance

Yujie Zhao

Jiangxi University of Finance and Economics

Donghua Zhou

Jiangxi University of Finance and Economics

Date Written: January 17, 2018

Abstract

An implicit assumption in a vast body of the CEO succession literature is a direct appointment of a permanent CEO after the departure of the predecessor, but this assumption is often violated in reality when interim CEOs have to be appointed during the search of a permanent CEO candidate. Building on the short-term nature of interim CEO contracts, this study examines the effect of an interim CEO succession on corporate long-term investment measured by firm R&D spending in China. We document that corporate R&D investment is negatively associated with the appointment of an interim CEO. This finding is robust to various endogeneity tests including the difference-in-differences analysis. A variety of results suggest that the negative effect of an interim CEO succession on R&D investment appears to be driven by CEOs with strong incentives to engage in myopic investment activity. Finally, we show that appointing an interim CEO is costly for shareholders in the short run as well as the long run.

Keywords: interim CEO; CEO succession; CEO turnover; R&D Investment

JEL Classification: G10; G30; M12

Suggested Citation

Wu, Fei and Yu, Jing and Zhao, Yujie and Zhou, Donghua, CEOs on a Short Runway: Interim CEO and R&D Investment in China (January 17, 2018). Asian Finance Association (AsianFA) 2018 Conference. Available at SSRN: https://ssrn.com/abstract=3104287 or http://dx.doi.org/10.2139/ssrn.3104287

Fei Wu

Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF) ( email )

Shanghai Jiao Tong University
211 West Huaihai Road
Shanghai, 200030
China

Jing Yu (Contact Author)

The University of Western Australia - Department of Accounting and Finance ( email )

School of Business
35 Stirling Highway
Crawley, Western Australia 6009
Australia

Yujie Zhao

Jiangxi University of Finance and Economics ( email )

South Lushan Road
Nanchang, Jiangxi 330013
China

Donghua Zhou

Jiangxi University of Finance and Economics ( email )

South Lushan Road
Nanchang, Jiangxi 330013
China

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