HOW CEO ATTRIBUTES AFFECT FIRM R&D SPENDING? NEW EVIDENCE FROM A PANEL OF FRENCH FIRMS

Basma Sellami Mezghanni
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Basma Sellami Mezghanni: LGC - Laboratoire de Gestion et de Cognition - UT3 - Université Toulouse III - Paul Sabatier - UT - Université de Toulouse

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Abstract: This study investigates empirically the relationship between CEO attributes and R&D spending. Using a sample of French firms listed on Euronext Paris, the empirical results indicate an inverted U-shaped relationship between R&D spending and both CEO's tenure and age suggesting the existence of a critical CEO age and a critical point in time over CEO tenure at a firm before which CEO increases the amount spent in R&D activities and after which CEO begins to exhibit investment myopia by gradually reducing the amount spent in R&D activities. Furthermore, we find a U-shaped relationship between R&D spending and CEO ownership; R&D spending is negatively (positively) associated with CEO ownership at low (high) levels of CEO stockholding. This result implies that at low levels of CEO ownership, an increase in CEO ownership exacerbates CEO myopia and the under-investment problem with regard to R&D activities. However, at high levels of CEO ownership, CEO becomes more willing to invest in risky R&D projects which may reflect a closer alignment of managers' and shareholders' interests.

Keywords: R&D spending; CEO attributes; agency theory; Dépenses de R&D; attributs du dirigeant; théorie de l'agence; upper-echelons perspective (search for similar items in EconPapers)
Date: 2010-05-10
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Published in Crises et nouvelles problématiques de la Valeur, May 2010, Nice, France. pp.CD-ROM

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