CEO Pet Projects

49 Pages Posted: 20 Feb 2021

See all articles by Paul H. Décaire

Paul H. Décaire

Arizona State University (ASU) - Finance Department

Denis Sosyura

Arizona State University

Date Written: December 11, 2020

Abstract

Using hand-collected data on CEOs’ personal assets, we find that CEOs prioritize corporate investment projects that increase their private assets’ value. Such pet projects are implemented sooner, receive more capital, and are less likely to be dropped. This investment strategy delivers large personal gains to the CEO, but selects lower NPV projects for the firm and erodes its investment efficiency. Using information from CEOs’ relatives as an instrument for the location of their private assets, we argue that these effects are causal. Overall, we uncover the impact of CEOs’ private monetary interests in capital budgeting decisions.

Keywords: CEO, private benefits, agency, rent extraction, corporate investment

JEL Classification: G30, G34, G41

Suggested Citation

H. Décaire, Paul and Sosyura, Denis, CEO Pet Projects (December 11, 2020). Available at SSRN: https://ssrn.com/abstract=3747263 or http://dx.doi.org/10.2139/ssrn.3747263

Paul H. Décaire

Arizona State University (ASU) - Finance Department ( email )

W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States

Denis Sosyura (Contact Author)

Arizona State University ( email )

Tempe, AZ 85287-3706
United States

HOME PAGE: http://www.public.asu.edu/~dsosyura/

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