The effect of ex-ante CEO turnover risk on firm’s discretionary expenditures

Seung Won Lee, Hyung Tae Kim, Byungjin Kwak, Changu Kim

Research output: Contribution to journalArticlepeer-review


This study investigates whether CEOs' involuntary turnover risk affects their decisions on discretionary investment expenditures and the subsequent influence of those decisions on firms' actual turnover results. Using the sample of CEO turnover over the period 1993-2010, we find that managers facing ex-ante high, involuntary turnover risk are more likely than others to reduce research and development expenses and capital expenditures. These results imply that turnover risk induces CEOs' myopic decisions, which helps them to survive in the firm. However, those decisions on discretionary expenditures and actual turnover are likely to hurt firm value because firms keep low-ability managers and face consequences of myopic decisions that are detrimental to the firms in the long run.
Original languageEnglish (US)
Pages (from-to)53-90
JournalQuarterly Journal of Finance and Accounting
Issue number1/2
StatePublished - 2018


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