CEOs on a Short Runway: Interim CEO and R&D Investment in China
60 Pages Posted: 18 Jan 2018
Date Written: January 17, 2018
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
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