Measuring R&D curtailment among short-horizon CEOs |
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| Authors: | Richard A Cazier |
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| Institution: | 1. D''Amore-McKim School of Business, Northeastern University, 360 Huntington Ave., Boston, MA 02115, United States;2. University of Erlangen-Nuremberg, Lange Gasse 20, 90403 Nuremberg, Germany;1. Mays Business School, Texas A&M University, 360 Wehner Building MS 4218, College Station, TX 77843, USA;2. School of Accounting and Finance, Faculty of Business, Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong;1. School of Business Administration, Chung-Ang University, Seoul, Republic of Korea;2. Pricewaterhousecoopers International Ltd., Republic of Korea |
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| Abstract: | I review evidence produced by prior literature on CEO horizon problems and show that prior empirical findings are correlated with the research design employed. I find that evidence of R&D curtailment by CEOs as they approach retirement stems predominantly from cross-sectional correlations between CEO age or tenure and R&D spending. Using a broad sample of CEOs of S&P 1500 firms, I identify two factors that confound the cross-sectional relationship of firm R&D spending on CEO age or tenure which can lead to spurious inferences regarding the CEO horizon problem. I find that tracking R&D spending by the same CEOs over time produces no evidence of R&D curtailment. These results have research design implications for future researchers investigating the impact of shortened CEO career horizons on investment myopia. |
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