Corporate capital budgeting and CEO turnover

Abigail Hornstein

Journal of Corporate Finance, 2013, vol. 20, issue C, 41-58

Abstract: When a firm has minimal agency and informational asymmetry problems it should make efficient capital budgeting decisions. Many firms over-invest prior to CEO turnover, halt investments in the period surrounding the turnover, and then greatly increase their level of expenditures. Empirical analysis of the cross-sectional and inter-temporal variation in the quality of firms' corporate capital budgeting decision reveals that the impact of CEO turnover is asymmetric between under- and over-investing firms, and this complements the larger literature using average firm-wide performance measures. Firms are more likely to have forced turnovers when there is more over-investment prior to the turnover, and these firms make more efficient investment decisions subsequently. Board influence is largely insignificant prior to a CEO turnover but is consistently associated with higher levels of investment subsequently.

Keywords: Capital budgeting; Marginal q; CEO turnover (search for similar items in EconPapers)
JEL-codes: G31 G32 G34 M12 M51 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:20:y:2013:i:c:p:41-58

DOI: 10.1016/j.jcorpfin.2012.11.003

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