Abstract
AbstractThis study explores the link between R&D investment variability and CEO turnover across the eras surrounding the Sarbanes‐Oxley Act (SOX). It posits that, after SOX, R&D expenditure hikes not matched by sales growth may trigger more frequent CEO turnover, driven by a perceived increase in risk. Data from 1996 to 2010 reveal that, before SOX, R&D increases positively correlate with CEO job stability. In contrast, after SOX, a rise in R&D spending is linked to a higher rate of CEO turnover, particularly involuntary dismissals. The study further identifies that post‐SOX, the negative impact of R&D spikes on CEO turnover is significantly mitigated when such investment aligns with sales growth. The findings suggest a significant influence of R&D investments on CEO turnover, underscoring the need for boards to deliberate the consequences of R&D spending and CEO turnover to better align shareholders and CEO interests.
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