CEO Pet Projects
49 Pages Posted: 20 Feb 2021
Date Written: December 11, 2020
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: Suggested Citation