Data Management

CEO Contract Horizon And Investment

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Executive Summary

This paper studies the relation between contract horizon and investment using a new, hand-collected dataset of 3,717 US CEO employment contracts. It finds that contract horizon predicts (ex post) realized tenure, is positively correlated with both capital expenditure and R&D expenses, and firms do not perform better when the CEO has less time left. The author controls for endogeneity using inter-state differences in the judicial treatment of contracts as an instrumental variable for the choice between contract types. The impact of contract horizon remains significant when the author controls for long-term compensation, firm characteristics and executive fixed effects.

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