Insight

Are a firm's investment cycles linked to CEO tenure?

Researchers find out that almost all CEOs unintentionally follow a set investment cycle

As unique as CEOs would like to think their reigns are, their investing personalities are more or less similar, recent studies say. Researchers Yihui Pan, Tracy Yue Wang and Michael S Weisbach found that almost all CEOs unintentionally follow a set investment cycle. Soon after they join the firm, CEOs disinvest non-performing assets that their predecessors were reluctant to let go of. Later, when they have more control over the board, the CEOs start increasing investments. These trends were noticed no matter what the external factors. The employment rates and growth of the firms also mirrored these ‘investment cycles’. And the effect is quantifiable, researchers say — there is a 6-8% difference in investment rate between the first three years and the subsequent years of a CEO’s tenure.

 

Title: CEO investment cycles

Source: The National Bureau of Economic Research

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