Investment efficiency under financial constraints: The role of CEO power

Muhammad Ansar Majeed, Irfan Ullah, Tanveer Ahsan and Bakr Al-Gamrh

Research in International Business and Finance, 2025, vol. 79, issue C

Abstract: Financial limitations can influence how effectively corporations invest, with influential CEOs playing a key role in making investment choices. This study investigates the link between CEO power and investment effectiveness in the context of financial limitations, using a dataset of Chinese firms listed from 2005 to 2022. We observe a negative association between CEO power and investment efficiency. Nonetheless, powerful CEOs facing financial pressures can notably enhance investment efficiency through adept strategic choices. Our findings remain robust across a range of alternative measures of investment efficiency and financial constraints, as well as various econometric specifications. Further examination shows that the investment inefficiencies associated with powerful CEOs mainly arise from overinvestment, while external governance factors, such as analyst coverage and media attention, as well as CEO gender, significantly impact the relationship between CEO power and investment efficiency. This research contributes to the existing body of knowledge on CEO power by integrating agency theory and strategic choice frameworks to clarify the relationship between CEO power and investment efficiency in financially constrained situations.

Keywords: Financial constraints; Investment efficiency; CEO power; External governance; CEO gender (search for similar items in EconPapers)
JEL-codes: G30 G31 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:79:y:2025:i:c:s0275531925003150

DOI: 10.1016/j.ribaf.2025.103059

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