IDEAS home Printed from https://ideas.repec.org/p/hal/journl/hal-00479532.html
   My bibliography  Save this paper

How Ceo Attributes Affect Firm R&D Spending? New Evidence From A Panel Of French Firms

Author

Listed:
  • Basma Sellami Mezghanni

    (LGC - Laboratoire de Gestion et de Cognition - UT3 - Université Toulouse III - Paul Sabatier - UT - Université de Toulouse)

Abstract

This study investigates empirically the relationship between CEO attributes and R&D spending. Using a sample of French firms listed on Euronext Paris, the empirical results indicate an inverted U-shaped relationship between R&D spending and both CEO's tenure and age suggesting the existence of a critical CEO age and a critical point in time over CEO tenure at a firm before which CEO increases the amount spent in R&D activities and after which CEO begins to exhibit investment myopia by gradually reducing the amount spent in R&D activities. Furthermore, we find a U-shaped relationship between R&D spending and CEO ownership; R&D spending is negatively (positively) associated with CEO ownership at low (high) levels of CEO stockholding. This result implies that at low levels of CEO ownership, an increase in CEO ownership exacerbates CEO myopia and the under-investment problem with regard to R&D activities. However, at high levels of CEO ownership, CEO becomes more willing to invest in risky R&D projects which may reflect a closer alignment of managers' and shareholders' interests.

Suggested Citation

  • Basma Sellami Mezghanni, 2010. "How Ceo Attributes Affect Firm R&D Spending? New Evidence From A Panel Of French Firms," Post-Print hal-00479532, HAL.
    • Handle: RePEc:hal:journl:hal-00479532
    Note: View the original document on HAL open archive server: https://hal.science/hal-00479532
    as

    Download full text from publisher

    File URL: https://hal.science/hal-00479532/document
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Alchian, Armen A & Demsetz, Harold, 1972. "Production , Information Costs, and Economic Organization," American Economic Review, American Economic Association, vol. 62(5), pages 777-795, December.
    2. F. M. Scherer, 1986. "Innovation and Growth: Schumpeterian Perspectives," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262691027, April.
    3. Fama, Eugene F & Jensen, Michael C, 1983. "Agency Problems and Residual Claims," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 327-349, June.
    4. Robert Gibbons & Kevin J. Murphy, 1992. "Does Executive Compensation Affect Investment?," Journal of Applied Corporate Finance, Morgan Stanley, vol. 5(2), pages 99-109, June.
    5. Danny Miller, 1991. "Stale in the Saddle: CEO Tenure and the Match Between Organization and Environment," Management Science, INFORMS, vol. 37(1), pages 34-52, January.
    6. Michael C. Jensen, 2010. "The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems," Journal of Applied Corporate Finance, Morgan Stanley, vol. 22(1), pages 43-58, January.
    7. Hirshleifer, David & Thakor, Anjan V, 1992. "Managerial Conservatism, Project Choice, and Debt," The Review of Financial Studies, Society for Financial Studies, vol. 5(3), pages 437-470.
    8. Eaton, Jonathan & Rosen, Harvey S, 1983. "Agency, Delayed Compensation, and the Structure of Executive Remuneration," Journal of Finance, American Finance Association, vol. 38(5), pages 1489-1505, December.
    9. Anisya S. Thomas & Robert J. Litschert & Kannan Ramaswamy, 1991. "The performance impact of strategy ‐ manager coalignment: An empirical examination," Strategic Management Journal, Wiley Blackwell, vol. 12(7), pages 509-522, October.
    10. David Hirshleifer, 1993. "Managerial Reputation and Corporate Investment Decisions," Financial Management, Financial Management Association, vol. 22(2), Summer.
    11. Berger, Philip G & Ofek, Eli & Yermack, David L, 1997. "Managerial Entrenchment and Capital Structure Decisions," Journal of Finance, American Finance Association, vol. 52(4), pages 1411-1438, September.
    12. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    13. Raquel Ortega-Argilés & Rosina Moreno & Jordi Caralt, 2005. "Ownership structure and innovation: is there a real link?," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 39(4), pages 637-662, December.
    14. Morck, Randall & Shleifer, Andrei & Vishny, Robert W., 1988. "Management ownership and market valuation," Scholarly Articles 29407535, Harvard University Department of Economics.
    15. Ho‐Uk Lee & Jong‐Hun Park, 2008. "The Influence of Top Management Team International Exposure on International Alliance Formation," Journal of Management Studies, Wiley Blackwell, vol. 45(5), pages 961-981, July.
    16. Gamble, John E., 2000. "Management commitment to innovation and esop stock concentration," Journal of Business Venturing, Elsevier, vol. 15(5-6), pages 433-447.
    17. Marshall, James P. & Sorenson, Ritch & Brigham, Keith & Wieling, Elizabeth & Reifman, Alan & Wampler, Richard S., 2006. "The paradox for the family firm CEO: Owner age relationship to succession-related processes and plans," Journal of Business Venturing, Elsevier, vol. 21(3), pages 348-368, May.
    18. Elie Matta & Paul W. Beamish, 2008. "The accentuated CEO career horizon problem: evidence from international acquisitions," Post-Print hal-00486653, HAL.
    19. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-329, May.
    20. Cui, Huimin & Mak, Y. T., 2002. "The relationship between managerial ownership and firm performance in high R&D firms," Journal of Corporate Finance, Elsevier, vol. 8(4), pages 313-336, October.
    21. Aloke Ghosh & Doocheol Moon & Kishore Tandon, 2007. "CEO Ownership and Discretionary Investments," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 34(5‐6), pages 819-839, June.
    22. Narayanan, M P, 1985. "Managerial Incentives for Short-term Results," Journal of Finance, American Finance Association, vol. 40(5), pages 1469-1484, December.
    23. Beatriz Garcia Osma, 2008. "Board Independence and Real Earnings Management: The Case of R&D Expenditure," Corporate Governance: An International Review, Wiley Blackwell, vol. 16(2), pages 116-131, March.
    24. John Child, 1974. "Managerial And Organizational Factors Associated With Company Performance Part I," Journal of Management Studies, Wiley Blackwell, vol. 11(3), pages 175-189, October.
    25. Kenneth M. Lehn & Mengxin Zhao, 2006. "CEO Turnover after Acquisitions: Are Bad Bidders Fired?," Journal of Finance, American Finance Association, vol. 61(4), pages 1759-1811, August.
    26. Dechow, Patricia M. & Sloan, Richard G., 1991. "Executive incentives and the horizon problem : An empirical investigation," Journal of Accounting and Economics, Elsevier, vol. 14(1), pages 51-89, March.
    27. Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 301-325, June.
    28. Murphy, Kevin J. & Zimmerman, Jerold L., 1993. "Financial performance surrounding CEO turnover," Journal of Accounting and Economics, Elsevier, vol. 16(1-3), pages 273-315, April.
    29. Karen A. Bantel & Susan E. Jackson, 1989. "Top management and innovations in banking: Does the composition of the top team make a difference?," Strategic Management Journal, Wiley Blackwell, vol. 10(S1), pages 107-124, June.
    30. Robert E. Hoskisson & Michael A. Hitt, 1988. "Strategic control systems and relative r&d investment in large multiproduct firms," Strategic Management Journal, Wiley Blackwell, vol. 9(6), pages 605-621, November.
    31. Cho, Myeong-Hyeon, 1998. "Ownership structure, investment, and the corporate value: an empirical analysis," Journal of Financial Economics, Elsevier, vol. 47(1), pages 103-121, January.
    32. Rajeswararao Chaganti & Rakesh Sambharya, 1987. "Strategic orientation and characteristics of upper management," Strategic Management Journal, Wiley Blackwell, vol. 8(4), pages 393-401, July.
    33. Morck, Randall & Shleifer, Andrei & Vishny, Robert W., 1988. "Management ownership and market valuation : An empirical analysis," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 293-315, January.
    34. Walters, Bruce A. & Kroll, Mark J. & Wright, Peter, 2007. "CEO tenure, boards of directors, and acquisition performance," Journal of Business Research, Elsevier, vol. 60(4), pages 331-338, April.
    35. Trina Larsen Andras & Srini S. Srinivasan, 2003. "Advertising Intensity and R&D Intensity: Differences across Industries and Their Impact on Firm's Performance," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 2(2), pages 167-176, August.
    36. K.S. Sujit & Badshah Mukherjee, 2005. "How Much Does R&D Decision Depend on Firm, Industry, Group and its Interactions?," Industrial Organization 0503008, University Library of Munich, Germany.
    37. Peter Wright & Mark Kroll & Jeffrey A. Krug & Michael Pettus, 2007. "Influences of top management team incentives on firm risk taking," Strategic Management Journal, Wiley Blackwell, vol. 28(1), pages 81-89, January.
    38. Aloke Ghosh & Doocheol Moon & Kishore Tandon, 2007. "CEO Ownership and Discretionary Investments," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 34(5-6), pages 819-839.
    39. Bhagat, Sanjai & Welch, Ivo, 1995. "Corporate research & development investments international comparisons," Journal of Accounting and Economics, Elsevier, vol. 19(2-3), pages 443-470, April.
    40. Jouahn Nam & Richard E. Ottoo & John H. Thornton Jr., 2003. "The Effect of Managerial Incentives to Bear Risk on Corporate Capital Structure and R&D Investment," The Financial Review, Eastern Finance Association, vol. 38(1), pages 77-101, February.
    41. Elie Matta & Paul W. Beamish, 2008. "The accentuated CEO career horizon problem: evidence from international acquisitions," Strategic Management Journal, Wiley Blackwell, vol. 29(7), pages 683-700, July.
    42. Lewellen, Wilbur & Loderer, Claudio & Martin, Kenneth, 1987. "Executive compensation and executive incentive problems : An empirical analysis," Journal of Accounting and Economics, Elsevier, vol. 9(3), pages 287-310, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Rizwan Ali & Ramiz Ur Rehman & Sana Suleman & Collins Gyakari Ntim, 2022. "CEO attributes, investment decisions, and firm performance: New insights from upper echelons theory," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(2), pages 398-417, March.
    2. Eckhaus, Eyal & Iholkina, Vasylyna & Shkolnik, Eleonora, 2022. "The impact of healthcare executive seniority on implementation of innovative methods of diagnosis and prevention," Health Policy, Elsevier, vol. 126(10), pages 996-1001.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chari, Murali D.R. & David, Parthiban & Duru, Augustine & Zhao, Yijiang, 2019. "Bowman's risk-return paradox: An agency theory perspective," Journal of Business Research, Elsevier, vol. 95(C), pages 357-375.
    2. Pascal Nguyen & Nahid Rahman & Ruoyun Zhao, 2018. "CEO characteristics and firm valuation: a quantile regression analysis," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 22(1), pages 133-151, March.
    3. James, Hui & Benson, Bradley W. & Wu, Chen (Ken), 2017. "Does CEO ownership affect payout policy? Evidence from using CEO scaled wealth-performance sensitivity," The Quarterly Review of Economics and Finance, Elsevier, vol. 65(C), pages 328-345.
    4. Dr. Sonia MOUSSA & Dr. Houssem RACHDI & Aymen AMMERI, 2013. "Governance, Managers’ Entrenchment and Performance: Evidence in French Firms Listed in SBF 120," International Journal of Business and Social Research, LAR Center Press, vol. 3(2), pages 35-48, February.
    5. Benson, Bradley W. & Chen, Yu & James, Hui L. & Park, Jung Chul, 2020. "So far away from me: Firm location and the managerial ownership effect on firm value," Journal of Corporate Finance, Elsevier, vol. 64(C).
    6. Bulan, Laarni & Sanyal, Paroma & Yan, Zhipeng, 2010. "A few bad apples: An analysis of CEO performance pay and firm productivity," Journal of Economics and Business, Elsevier, vol. 62(4), pages 273-306, July.
    7. Sellami Basma, 2008. "Gouvernement D'Entreprise Et Investissement En R&D : Une Etude Sur Le Sbf 250," Post-Print halshs-00525983, HAL.
    8. Bradley W. Benson & Wallace N. Davidson III & Hongxia Wang & Dan L. Worrell, 2011. "Deviations from Expected Stakeholder Management, Firm Value, and Corporate Governance," Financial Management, Financial Management Association International, vol. 40(1), pages 39-81, March.
    9. repec:eee:labchp:v:3:y:1999:i:pb:p:2485-2563 is not listed on IDEAS
    10. Neeraj Gupta & Jitendra Mahakud, 2020. "CEO characteristics and bank performance: evidence from India," Managerial Auditing Journal, Emerald Group Publishing Limited, vol. 35(8), pages 1057-1093, August.
    11. Muurling, Rutger & Lehnert, Thorsten, 2004. "Option-based compensation: a survey," The International Journal of Accounting, Elsevier, vol. 39(4), pages 365-401.
    12. Guidi, Marco G.D. & Hillier, Joe & Tarbert, Heather, 2010. "Successfully reshaping the ownership relationship by reducing ‘moral debt’ and justly distributing residual claims: The cases from Scott Bader Commonwealth and the John Lewis Partnership," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 21(4), pages 318-328.
    13. Li, Tongxia & Munir, Qaiser & Abd Karim, Mohd Rahimie, 2017. "Nonlinear relationship between CEO power and capital structure: Evidence from China's listed SMEs," International Review of Economics & Finance, Elsevier, vol. 47(C), pages 1-21.
    14. Antia, Murad & Pantzalis, Christos & Park, Jung Chul, 2010. "CEO decision horizon and firm performance: An empirical investigation," Journal of Corporate Finance, Elsevier, vol. 16(3), pages 288-301, June.
    15. An, Suwei, 2023. "Essays on incentive contracts, M&As, and firm risk," Other publications TiSEM dd97d2f5-1c9d-47c5-ba62-f, Tilburg University, School of Economics and Management.
    16. Vincent O. Ongore & Peter O. K'Obonyo, 2011. "Effects of Selected Corporate Governance Characteristics on Firm Performance: Empirical Evidence from Kenya," International Journal of Economics and Financial Issues, Econjournals, vol. 1(3), pages 99-122, September.
    17. Jimmy A. Saravia, 2014. "Why has the literature on corporate governance and firm performance yielded mixed results?," Documentos de Trabajo de Valor Público 10914, Universidad EAFIT.
    18. Li, Donghui & Moshirian, Fariborz & Nguyen, Pascal & Tan, Liwen, 2007. "Corporate governance or globalization: What determines CEO compensation in China?," Research in International Business and Finance, Elsevier, vol. 21(1), pages 32-49, January.
    19. Naeem Tabassum & Satwinder Singh, 2020. "Corporate Governance and Organisational Performance," Springer Books, Springer, number 978-3-030-48527-6, June.
    20. Coles, Jeffrey L. & Daniel, Naveen D. & Naveen, Lalitha, 2006. "Managerial incentives and risk-taking," Journal of Financial Economics, Elsevier, vol. 79(2), pages 431-468, February.
    21. Sinclair Davidson & Robert Brooks, 2004. "R&D, Agency Costs and Capital Structure: International Evidence," Econometric Society 2004 Australasian Meetings 59, Econometric Society.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:journl:hal-00479532. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CCSD (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.