CEO Characteristics, Corporate Decisions and Firm Value: Evidence from Corporate Refocusing

This paper investigates how managerial expertise, specifically, industry expertise, affects firm value through divestiture. Using CEOs’ industry experience along their career path as a measure of their industry expertise, I find that CEOs in diversified conglomerates are more likely to divest divisi...

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Main Author: HUANG, Sheng
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Language:English
Published: Institutional Knowledge at Singapore Management University 2010
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Online Access:https://ink.library.smu.edu.sg/lkcsb_research/3054
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1537458
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spelling sg-smu-ink.lkcsb_research-40532011-01-21T04:42:16Z CEO Characteristics, Corporate Decisions and Firm Value: Evidence from Corporate Refocusing HUANG, Sheng This paper investigates how managerial expertise, specifically, industry expertise, affects firm value through divestiture. Using CEOs’ industry experience along their career path as a measure of their industry expertise, I find that CEOs in diversified conglomerates are more likely to divest divisions that they are less experienced to manage. This evidence is consistent with CEOs divesting divisions to refocus on those divisions in which they specialize, that is, to achieve a better match between their expertise and their firm’s retained assets. Firms that divest for a better CEO-firm match experience significant improvements in operating performance, and significant abnormal stock returns, that persist three years following a divestiture. Further, among firms divesting for a better match, those with more experienced CEOs realize greater gains to firm value. In contrast, divestitures that increase corporate focus but do not improve the expertise-asset match deliver little long-run gain. I conduct various tests to address the endogeneity of CEO appointment and find that the results are robust. 2010-11-01T07:00:00Z text https://ink.library.smu.edu.sg/lkcsb_research/3054 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1537458 Research Collection Lee Kong Chian School Of Business eng Institutional Knowledge at Singapore Management University CEO characteristics managerial expertise refocus diversification divestiture Business Administration, Management, and Operations Organizational Behavior and Theory
institution Singapore Management University
building SMU Libraries
continent Asia
country Singapore
Singapore
content_provider SMU Libraries
collection InK@SMU
language English
topic CEO characteristics
managerial expertise
refocus
diversification
divestiture
Business Administration, Management, and Operations
Organizational Behavior and Theory
spellingShingle CEO characteristics
managerial expertise
refocus
diversification
divestiture
Business Administration, Management, and Operations
Organizational Behavior and Theory
HUANG, Sheng
CEO Characteristics, Corporate Decisions and Firm Value: Evidence from Corporate Refocusing
description This paper investigates how managerial expertise, specifically, industry expertise, affects firm value through divestiture. Using CEOs’ industry experience along their career path as a measure of their industry expertise, I find that CEOs in diversified conglomerates are more likely to divest divisions that they are less experienced to manage. This evidence is consistent with CEOs divesting divisions to refocus on those divisions in which they specialize, that is, to achieve a better match between their expertise and their firm’s retained assets. Firms that divest for a better CEO-firm match experience significant improvements in operating performance, and significant abnormal stock returns, that persist three years following a divestiture. Further, among firms divesting for a better match, those with more experienced CEOs realize greater gains to firm value. In contrast, divestitures that increase corporate focus but do not improve the expertise-asset match deliver little long-run gain. I conduct various tests to address the endogeneity of CEO appointment and find that the results are robust.
format text
author HUANG, Sheng
author_facet HUANG, Sheng
author_sort HUANG, Sheng
title CEO Characteristics, Corporate Decisions and Firm Value: Evidence from Corporate Refocusing
title_short CEO Characteristics, Corporate Decisions and Firm Value: Evidence from Corporate Refocusing
title_full CEO Characteristics, Corporate Decisions and Firm Value: Evidence from Corporate Refocusing
title_fullStr CEO Characteristics, Corporate Decisions and Firm Value: Evidence from Corporate Refocusing
title_full_unstemmed CEO Characteristics, Corporate Decisions and Firm Value: Evidence from Corporate Refocusing
title_sort ceo characteristics, corporate decisions and firm value: evidence from corporate refocusing
publisher Institutional Knowledge at Singapore Management University
publishDate 2010
url https://ink.library.smu.edu.sg/lkcsb_research/3054
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1537458
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