Investor Myopia and CEO Turnover

28 Pages Posted: 26 May 2020

See all articles by Vidhan K. Goyal

Vidhan K. Goyal

Hong Kong University of Science & Technology (HKUST) - Department of Finance

Angie Low

Nanyang Technological University - Division of Banking & Finance

Date Written: December 2019

Abstract

We find that Chief Executive Officer (CEO) turnover is significantly higher and considerably less sensitive to performance in firms with short investor horizons. Decisions to dismiss a CEO lead to worse operating performance, which is even poorer when investors have short horizons. Furthermore, new managers respond to investor short‐termism by increasing industry‐adjusted capital expenditures while maintaining R&D and patenting activity. In addition, in firms with short‐horizon investors, total risk increases around forced CEO turnovers, largely because of an increase in idiosyncratic risk. The evidence is consistent with short‐term investors distorting corporate policies of firms through their influence on top management turnover.

Suggested Citation

Goyal, Vidhan K. and Low, Angie, Investor Myopia and CEO Turnover (December 2019). International Review of Finance, Vol. 19, Issue 4, pp. 759-786, 2019, Available at SSRN: https://ssrn.com/abstract=3603500 or http://dx.doi.org/10.1111/irfi.12198

Vidhan K. Goyal (Contact Author)

Hong Kong University of Science & Technology (HKUST) - Department of Finance ( email )

Clear Water Bay, Kowloon
Hong Kong
852-2358-7678 (Phone)
852-2358-1749 (Fax)

HOME PAGE: http://www.vidhangoyal.com

Angie Low

Nanyang Technological University - Division of Banking & Finance ( email )

Singapore, 639798
Singapore

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