Reductions in CEO Career Horizons and Corporate Policies

50 Pages Posted: 6 Feb 2019 Last revised: 1 Oct 2019

See all articles by Nihat Aktas

Nihat Aktas

WHU - Otto Beisheim School of Management

Audra L. Boone

Texas Christian University - M.J. Neeley School of Business

Ettore Croci

Catholic University of the Sacred Heart of Milan

Andrea Signori

Catholic University of Milan

Date Written: July 16, 2019

Abstract

We provide evidence on how personal shocks that plausibly reduce a CEO’s career horizon, triggered by either the CEO’s diagnosis of a serious illness or an illness or death of a close relative, affect key corporate policies. We validate our identification strategy by showing that these events are not predictable based on observable characteristics and that CEOs exposed to such events experience greater turnover rates and lower residual time-in-office. Following the shock, and while the CEO remains in office, these firms moderate both R&D and capital expenditures and increase cash distributions. While these results are consistent with greater short-term orientation, these changes are not necessarily detrimental to shareholders, as both operating and stock performance increase in the aftermath of the shock. Earnings management and CEO compensation remain unchanged, indicating that the improved performance comes from the implementation of relatively more efficient firm policies rather than from opportunistic behaviors.

Keywords: CEO, career horizon, tenure, illness, opportunism, investment, R&D, payout

JEL Classification: G32, G34

Suggested Citation

Aktas, Nihat and Boone, Audra and Croci, Ettore and Signori, Andrea, Reductions in CEO Career Horizons and Corporate Policies (July 16, 2019). Proceedings of Paris December 2019 Finance Meeting EUROFIDAI - ESSEC. Available at SSRN: https://ssrn.com/abstract=3321049 or http://dx.doi.org/10.2139/ssrn.3321049

Nihat Aktas (Contact Author)

WHU - Otto Beisheim School of Management ( email )

Burgplatz 2
Vallendar, 56179
Germany

Audra Boone

Texas Christian University - M.J. Neeley School of Business ( email )

Fort Worth, TX 76129
United States

Ettore Croci

Catholic University of the Sacred Heart of Milan ( email )

Largo Gemelli, 1
Via Necchi 9
Milan, MI 20123
Italy

Andrea Signori

Catholic University of Milan ( email )

Largo Gemelli, 1
Via Necchi 9
Milan, MI 20123
Italy

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