Management Connectedness and Corporate Investment

65 Pages Posted: 24 Jan 2018 Last revised: 28 Dec 2020

See all articles by Mahmoud Agha

Mahmoud Agha

University of Western Australia

Man Duy (Marty) Pham

The University of Western Australia

Jing Yu

The University of Sydney; Financial Research Network (FIRN)

Date Written: January 28, 2020


In response to the mixed views about the appointment-based connectedness between CEO and subordinate C-level executives, we systematically analyze the net effect of top management team (TMT) connectedness in the context of real corporate investment activities. We document a robust negative association between TMT connectedness and corporate investments, driven by the reduction in corporate R&D spending and acquisitions. Further tests show investment inefficiency in firms with closely connected managers, suggesting an average weak governance effect of TMT connectedness. To explain such an effect, we find that connected executives tend to avoid risky investments and shirk investment responsibilities when facing little career concerns. Interestingly, the agency cost and coordination benefit of interconnected TMT are not mutually exclusive. The adverse investment effect of TMT connectedness tempers in firms facing financial constraints and even reverses during the Global Financial Crisis when financial constraints are most likely binding.

Keywords: Corporate investment, top management team, CEO power, internal governance

JEL Classification: G31, G34, M12

Suggested Citation

Agha, Mahmoud and Pham, Man and Yu, Jing, Management Connectedness and Corporate Investment (January 28, 2020). Asian Finance Association (AsianFA) 2018 Conference, Journal of Banking and Finance, Forthcoming, Available at SSRN: or

Mahmoud Agha

University of Western Australia ( email )

Crawley, Western Australia 6009

Man Pham (Contact Author)

The University of Western Australia ( email )

35 Stirling Highway
Crawley, WA 6009

Jing Yu

The University of Sydney ( email )

University of Sydney
Sydney, NSW 2006

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane


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