Work

CEO tenure and labor investment efficiency

Year: 2025

Type: article

Abstract: We examine the impact of CEO tenure on corporate labor investment efficiency. While some studies show that CEO entrenchment increases in tenure (e.g., Hermalin and Weibach, 1998), others argue that managerial expertise builds over time in the office (e.g., Graf-Vlachy et al., 2020). Using a large sample of U.S. firms from 1992-2018, we find that longer-tenured CEOs are associated with more efficient labor investment. This finding is robust to alternative measures of labor investment inefficiency, subsample analyses, and various model specifications. Further analysis shows that longer-tenured CEOs mitigate both under- and over-investment in labor problems characterized by under-hiring and under-firing, respectively. The positive effect of CEO tenure on labor investment efficiency is stronger in human capital-intensive firms and those with greater operational uncertainty. We conclude that advanced managerial expertise enables longer-tenured CEOs to invest in labor more accurately.

Source: Journal of Contemporary Accounting & Economics

DOI: 10.1016/j.jcae.2025.100475

Authors: Hui Liang James, Pornsit Jiraporn, Hongxia Wang

Institutions: The University of Texas at Tyler, Pennsylvania State University, Coastal Carolina University

Language: English

Topic: Corporate Finance and Governance

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

SDG: Decent work and economic growth

Open Access status: hybrid

Estimated APC paid: $3,860