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Investment Efficiency, CEO Turnover, and CEO Career Concerns

박두리|정태진
한국조세연구포럼 (Korea Tax Research Forum)|2021.12|조세연구|제21권 제4호|pp. 63-96|DOI 10.35636/ktr.2021.21.4.003

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키워드

Investment기업투자Investment EfficiencyCareer ConcernsCEO TenureCEO TurnoverCEO 해고CEO 테뉴어기업투자의 효율성경력에 대한 우려

초록

[Purpose]CEOs’ investment decisions are critical to firms because inefficient investment choices are detrimental to investor wealth. We provide a link between CEOs’ investment decisions and their career concerns by investigating firms’ CEO turnover. [Methodology]Using the measures of investment efficiency, we find that firms with under－investment are more likely to experience forced CEO turnover relative to peers with efficient investment. [Findings]We also find that our results are more pronounced for CEOs facing intense labor market competition and for CEOs with lower ability. [Implications]The results imply that CEOs facing severe career concerns more likely to deviate from the optimal investment levels, and the board of directors and shareholders do not fully react to the inefficient investments by CEOs.

Abstract

[Purpose]CEOs’ investment decisions are critical to firms because inefficient investment choices are detrimental to investor wealth. We provide a link between CEOs’ investment decisions and their career concerns by investigating firms’ CEO turnover. [Methodology]Using the measures of investment efficiency, we find that firms with under－investment are more likely to experience forced CEO turnover relative to peers with efficient investment. [Findings]We also find that our results are more pronounced for CEOs facing intense labor market competition and for CEOs with lower ability. [Implications]The results imply that CEOs facing severe career concerns more likely to deviate from the optimal investment levels, and the board of directors and shareholders do not fully react to the inefficient investments by CEOs.

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