CEO Time Focus and Corporate Investments

Abstract

The literature in strategy has given less attention to chief executive officers’ (CEO) temporal focus as a personality characteristic and its impact on investment activities and financing. We argue CEOs’ temporal focus can account for corporate investment direction and the way by which CEOs finance their investments. We have tested our hypotheses drawing on the data from 20,416 firm-year observations from 2002 to 2016. We have measured CEOs’ temporal focus using computer-aided text analysis of conference calls, and firms’ investment and financing activities using financial data. Our results suggest future focus CEOs are more likely to invest in research and development and to acquire firms. In addition, to lesser extent, they tend to upgrade existing plant, property, and equipment related to capital expenditure more often than past focus CEOs. Furthermore, our findings show future focus CEOs are more likely use long-term debt to finance their investments in research and development, property, plant and equipment. They are also more likely choose private placement as a mean of financing over equity issuance. These findings are in line with previous research arguing that investment in such activities reflect the CEOs’ intention to benefit from future opportunities and to remain competitive.