CEO Pet Projects
57 Pages Posted: 20 Feb 2021 Last revised: 9 Apr 2021
Date Written: April 8, 2021
Using hand-collected data on CEOs’ personal assets, we find that CEOs prioritize corporate investment projects that increase the value of CEOs’ private assets. 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 CEOs’ private monetary motives in capital budgeting decisions.
Keywords: CEO, private benefits, agency, rent extraction, corporate investment
JEL Classification: G30, G34, G41
Suggested Citation: Suggested Citation