Do local CEOs with a strong sense of power foster excessive investment? Evidence from China

Lei Tan, Peng Wu, Kejin Ni and Xiaobing Lai

Applied Economics Letters, 2024, vol. 31, issue 19, 2016-2019

Abstract: This study investigated whether local Chief Executive Officers (CEOs) with a strong sense of power foster excessive investment compared with non-local CEOs to explore how the psychological impacts of power shape individual behaviour. This study observed a sample comprising 5460 firms from Chinese listed firms yearly between 2008 and 2020. This study found a strong association between local CEOs and excessive investment. The results of this study remain consistent after a series of robustness tests. Further analyses revealed that both CEO overconfidence and power are important factors shaping excessive investment. In conclusion, these findings revealed that local CEOs foster excessive investment owing to the psychological effects of sense of power. This study provides insights into the influence of the CEO’s local status on corporate decision-making, which can be beneficial for policymakers, investors, and other stakeholders.

Date: 2024
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DOI: 10.1080/13504851.2023.2208841

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