CEO tenure and labor investment efficiency

Hui Liang James, Pornsit Jiraporn and Hongxia Wang

Journal of Contemporary Accounting and Economics, 2025, vol. 21, issue 2

Abstract: We examine the impact of CEO tenure on corporate labor investment efficiency. While some studies show that CEO entrenchment increases in tenure (e.g., Hermalin and Weisbach, 1998), others argue that managerial expertise builds over time in the office (e.g., Graf-Vlachy et al., 2020). Using a large sample of U.S. firms from 1992 to 2018, we find that longer-tenured CEOs are associated with more efficient labor investment. This finding is robust to alternative measures of labor investment inefficiency, subsample analyses, and various model specifications. Further analysis shows that longer-tenured CEOs mitigate both under- and over-investment in labor problems characterized by under-hiring and under-firing, respectively. The positive effect of CEO tenure on labor investment efficiency is stronger in human capital-intensive firms and those with greater operational uncertainty. We conclude that advanced managerial expertise enables longer-tenured CEOs to invest in labor more accurately.

Keywords: CEO tenure; Managerial expertise; Labor investment efficiency (inefficiency); Abnormal net hiring; Expected level of labor investment (search for similar items in EconPapers)
JEL-codes: E22 G30 G31 J20 M12 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jocaae:v:21:y:2025:i:2:s1815566925000220

DOI: 10.1016/j.jcae.2025.100475

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