Are financially sophisticated CEO’s more efficient when it comes to investing?
DOI:
https://doi.org/10.1590/1808-057x20231914.enKeywords:
experience, education, overinvestment, underinvestmentAbstract
This study aims to examine the relationship between the financial sophistication (FS) of the Chief Executive Officer (CEO) and the efficiency of corporate investments using empirical analysis in a sample of 189 companies listed on the B3 S.A. – Brasil, Bolsa, Balcão (B3), from 2010 to 2021. Research on the individual characteristics of managers has mainly explored aspects related to decisions on companies’ financial policies. Thus, this study seeks to add a new element to the discussion by investigating how these characteristics are related to the efficient use of resources available for investment. By examining the relationship between CEO FS and investment efficiency, it contributes to the discussion in the literature on how manager characteristics affect the way in which decision makers run companies. This adds new insights to the understanding of how the financial skills and individual characteristics of managers can influence organizational performance and results. The research is relevant in presenting the relationship between CEO expertise and investment decisions in the Brazilian market, where the supply of capital tends to be low (financial constraint); consequently, investing more assertively and efficiently has an impact on the organization’s results and longevity. Using a proxy that measures investment efficiency, regressions were run using the generalized method of moments (sys-GMM) and multinomial regression. The analyses suggest that CEO FS is related to investment efficiency in several ways. When FS is measured in terms of components, past experience is negatively related to deviations from the optimal level of investment. However, the international component is positively related to such deviations. In addition, a multinomial analysis showed that CEO experience helps reduce the probability of underinvestment, suggesting that an experienced CEO tends to contribute to the efficiency of company investments.
Downloads
Downloads
Published
Issue
Section
License
Copyright (c) 2024 Revista Contabilidade & Finanças
This work is licensed under a Creative Commons Attribution 4.0 International License.
The content of the article(s) published in the RC&F are of the entire liability of the authors, including with regard to the truth, updating and accuracy of data and information. The authors shall assign the rights in advance to the Department of Accounts and Actuarial Sciences of the FEA/USP, which shall permit the publication of extracts or of the whole, with prior permission, provided that the source is cited (Creative Commons – CCBY).
RC&F shall not charge a fee for the submission of articles. The submission of articles to RC&F shall imply that the author(s) authorizes/authorize its publication without the payment of author’s rights.
The submission of articles shall authorize the RC&F to adjust the text of the article(s) to their publication formats and if necessary, to make spelling, grammar and regulatory changes.