CEO characteristics board diversity and firm investment outcomes

Abstract

newline Recently, a growing set of studies in corporate finance attempts to empirically quantify the effect of CEO characteristics on firm investment spending for samples of large U.S. firms (Bertrand and Schoar (2003); Malmendier and Tate (2005); Dittmar and Duchin (2015); Pan, Wang, and Weisbach (2016)). The focus of these studies has been on CEO characteristics such as age, gender, education, prior experience, tenure, and overconfidence. However, we know relatively little about how differences between CEO and board member characteristics (diversity) can affect investment outcomes. Further, whether the U.S. evidence extends to culturally and institutionally different economies such as India is an open question. My dissertation extends the literature on CEO characteristics and corporate investment in several ways. First, by examining India, an emerging economy that has a business environment that is quite different from the U.S., I evaluate the generalizability of the U.S. findings. Second, I construct a measure of board diversity that is multi-dimensional and simultaneously considers several characteristics of board members that relate to age, gender, education, and prior experience. Third, to my knowledge, this is the first study to separate board diversity into two components - diversity among board members other than the CEO, and differences in characteristics of the CEO on the one hand, and board members on the other. Fourth, I believe that this is also the first study to examine whether CEO characteristics and board diversity affect the size of new capital investment projects, project announcement returns, and post-project profitability. I examine three types of corporate investment capital expenditures, research and development (RandD), and advertising.