CEO Turnover, Equity-Based Compensation And Firms Investment Decisions

Abstract

This paper examines the impact of the newly appointed CEOs on firms future investment decisions and whether the relation is affected by the equity-based compensation, corporate governance provisions and other CEO characteristics. Using CEO turnover data from 1992-2004, the results show that new CEOs with high options-based compensation, following forced turnover and with shorter organization tenure, are associated with high R&D and advertisement investments. These results are consistent with the managerial incentive effect and the dismissal effect.