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CEO decision horizon and corporate R&D investments: an explanation based on managerial myopia and risk aversion

CEO decision horizon and corporate R&D investments: an explanation based on managerial myopia and... Combining the views of managerial myopia and risk aversion, we argue that a short decision horizon could divert corporate investments away from R&D investments. We devise an industry‐adjusted measurement combining CEO’s expected tenure and age as a proxy for CEO decision horizon and find a positive relationship between the horizon and corporate R&D investments. The relationship is stronger among firms with lower industry‐level income volatility and lower firm‐level performance pressure. The results also show that CEO age is more important than CEO tenure in affecting the decision horizon. Further analyses indicate that risk aversion determines the studied relationship. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Accounting & Finance Wiley

CEO decision horizon and corporate R&D investments: an explanation based on managerial myopia and risk aversion

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References (66)

Publisher
Wiley
Copyright
Accounting and Finance © 2021 AFAANZ
ISSN
0810-5391
eISSN
1467-629X
DOI
10.1111/acfi.12752
Publisher site
See Article on Publisher Site

Abstract

Combining the views of managerial myopia and risk aversion, we argue that a short decision horizon could divert corporate investments away from R&D investments. We devise an industry‐adjusted measurement combining CEO’s expected tenure and age as a proxy for CEO decision horizon and find a positive relationship between the horizon and corporate R&D investments. The relationship is stronger among firms with lower industry‐level income volatility and lower firm‐level performance pressure. The results also show that CEO age is more important than CEO tenure in affecting the decision horizon. Further analyses indicate that risk aversion determines the studied relationship.

Journal

Accounting & FinanceWiley

Published: Dec 1, 2021

Keywords: Agency problem; CEO decision horizon; Performance pressure; R&D investments; Risk aversion

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