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CEO horizon problem and characteristics of board of directors and compensation committee
Author(s) -
Liu Ruonan,
Liu Zhenfeng
Publication year - 2020
Publication title -
journal of corporate accounting and finance
Language(s) - English
Resource type - Journals
eISSN - 1097-0053
pISSN - 1044-8136
DOI - 10.1002/jcaf.22446
Subject(s) - extant taxon , accrual , compensation (psychology) , accounting , business , horizon , executive compensation , power (physics) , on board , corporate governance , finance , psychology , engineering , social psychology , physics , earnings , quantum mechanics , astronomy , evolutionary biology , biology , aerospace engineering
Extant research finds inconclusive evidence about the CEO horizon problem. One possible explanation is that board of directors, especially compensation committees, intervene to mitigate the CEO horizon problem. In this study, we examine whether the characteristics of board of directors and compensation committee affect their effectiveness in mitigating the CEO horizon problem. We find that retiring CEOs are more likely to reduce R&D expenditures when CEOs have more power, and director tenure is longer; retiring CEOs in firms with large board of directors and compensation committee are less likely to manage accruals.