CEO contractual protection and managerial short-termism

How to address managerial short-termism has been an important issue for companies, regulators, and researchers. In this paper we examine the impact of CEO contractual protection, in the form of employment agreement and severance pay agreement, on managerial short-termism. We find that firms with CEO...

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Main Authors: CHEN, Xia, CHENG, Qiang, Lo, Alvis, WANG, Xin
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Language:English
Published: Institutional Knowledge at Singapore Management University 2012
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Online Access:https://ink.library.smu.edu.sg/soa_research/983
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spelling sg-smu-ink.soa_research-19822013-05-14T05:30:08Z CEO contractual protection and managerial short-termism CHEN, Xia CHENG, Qiang Lo, Alvis WANG, Xin How to address managerial short-termism has been an important issue for companies, regulators, and researchers. In this paper we examine the impact of CEO contractual protection, in the form of employment agreement and severance pay agreement, on managerial short-termism. We find that firms with CEO contractual protection are less likely to cut R&D expenditures to avoid earnings decreases. The effect is both statistically and economically significant. We further find that the effect of CEO contractual protection is stronger in cases where CEOs have stronger incentives to engage in myopic behavior, either due to job security concerns or due to short investment horizon of investors, and in cases where alternative monitoring mechanisms are weaker. 2012-05-01T07:00:00Z text https://ink.library.smu.edu.sg/soa_research/983 Research Collection School Of Accountancy eng Institutional Knowledge at Singapore Management University employment agreement severance pay agreement managerial short-termism Accounting Corporate Finance Human Resources Management
institution Singapore Management University
building SMU Libraries
continent Asia
country Singapore
Singapore
content_provider SMU Libraries
collection InK@SMU
language English
topic employment agreement
severance pay agreement
managerial short-termism
Accounting
Corporate Finance
Human Resources Management
spellingShingle employment agreement
severance pay agreement
managerial short-termism
Accounting
Corporate Finance
Human Resources Management
CHEN, Xia
CHENG, Qiang
Lo, Alvis
WANG, Xin
CEO contractual protection and managerial short-termism
description How to address managerial short-termism has been an important issue for companies, regulators, and researchers. In this paper we examine the impact of CEO contractual protection, in the form of employment agreement and severance pay agreement, on managerial short-termism. We find that firms with CEO contractual protection are less likely to cut R&D expenditures to avoid earnings decreases. The effect is both statistically and economically significant. We further find that the effect of CEO contractual protection is stronger in cases where CEOs have stronger incentives to engage in myopic behavior, either due to job security concerns or due to short investment horizon of investors, and in cases where alternative monitoring mechanisms are weaker.
format text
author CHEN, Xia
CHENG, Qiang
Lo, Alvis
WANG, Xin
author_facet CHEN, Xia
CHENG, Qiang
Lo, Alvis
WANG, Xin
author_sort CHEN, Xia
title CEO contractual protection and managerial short-termism
title_short CEO contractual protection and managerial short-termism
title_full CEO contractual protection and managerial short-termism
title_fullStr CEO contractual protection and managerial short-termism
title_full_unstemmed CEO contractual protection and managerial short-termism
title_sort ceo contractual protection and managerial short-termism
publisher Institutional Knowledge at Singapore Management University
publishDate 2012
url https://ink.library.smu.edu.sg/soa_research/983
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