CEO Career Horizon and R&D Investments: Evidence from China
47 Pages Posted: 23 Jan 2019 Last revised: 29 Mar 2019
Date Written: March 25, 2019
We investigate whether the short-termism problem of CEOs has implications on corporate investment decisions in R&D. Using a sample of Chinese public companies from 2010-2016, we find that CEOs with shorter career horizon invest less in R&D than those with longer expected career horizons. We also find that the decrease of R&D induced by short horizon is more salient for firms in industries with lower-level of environmental dynamism. Results on further tests suggest that CEO’s career horizon influence R&D mainly from the risk-averse channel rather than the agency conflict channel. These findings indicate that the uncertainty of not being paid off in short career length may inhibit firms’ long-term oriented decisions.
Keywords: CEO career horizon, R&D investment, environmental dynamism, agency conflict, rational risk-averse
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