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Financial experts on the top management team: Do they reduce investment inefficiency?

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  • Zhe Li
  • Oksana Pryshchepa
  • Bo Wang

Abstract

We examine the effect of the top management team (TMT) professional finance experience on firm investment efficiency. Top managers with a career background in finance help reduce deviations of investment from the level warranted by firm fundamentals. Reductions in investment inefficiencies are achieved by financial expert managers using project‐specific rather than company‐wide, discount rates for project evaluation and facilitating debt and equity issuance at lower costs. Greater investment efficiency due to the financial expertise of TMT improves firm performance. We demonstrate that these improvements are driven by the collective expertise of the TMT rather than solely by chief executive officers.

Suggested Citation

  • Zhe Li & Oksana Pryshchepa & Bo Wang, 2023. "Financial experts on the top management team: Do they reduce investment inefficiency?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 50(1-2), pages 198-235, January.
    • Handle: RePEc:bla:jbfnac:v:50:y:2023:i:1-2:p:198-235
    DOI: 10.1111/jbfa.12575
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