Executive Compensation and Horizon Incentives: an Empirical Investigation

• Main Author: HUANG, Sheng
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2012
• Subjects: Business
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/4243
• Institution: Singapore Management University

This paper investigates the hypothesis that CEOs in their final years of office manage discretionary investment expenditures to improve short-term earnings performance. We examine the behavior of R & D expenditures for a sample of firms in industries that have significant ongoing R & D activities. The results suggest that CEOs spend less on R & D during their final years in office. However, we find the reductions in R & D expenditures are mitigated through CEO stock ownership. There is no evidence that the reduced R & D expenditures are associated with either poor firm performance or reductions in investment expenditures that are capitalized for accounting purposes.