Celebrity CEOs and corporate investment: A psychological contract perspective

Linzi Zhou, Wenbin Long, Xin Qu and Daifei Yao

International Review of Financial Analysis, 2023, vol. 87, issue C

Abstract: Drawing on the psychological contract theory, we examine how the celebrity status of chief executive officers (CEO) influences corporate investment behavior. Using a sample of Chinese listed companies from 2002 to 2019, we find that celebrity CEOs increase corporate investment levels, leading to lower investment efficiency. In addition, they employ more impression management tactics to signal their superior managerial ability, and dodge possible rejections of their investment decisions by having fewer board meetings. Furthermore, since the perceived psychological contract is dynamic, we provide evidence that the association between the celebrity CEO and corporate investment is more pronounced when a firm faces environmental uncertainty, and pressures from intensive industry competition and peers' performance. Our study contributes to corporate finance literature and results indicate that CEOs with celebrity status are pressured to maintain a psychological contract, which in turn, reduce the efficiency of corporate resource allocation.

Keywords: CEO celebrity; Psychological contract; Corporate investment; Investment efficiency; Environmental uncertainty (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:87:y:2023:i:c:s1057521923001527

DOI: 10.1016/j.irfa.2023.102636

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