Influence of CEO Age and CEO Founding Experience on Myopic Management at Initial Public Offerings

Abstract

This study investigates the effects of key characteristics of the chief executive officer (CEO) on a firm’s decision to engage in myopic earnings inflation around its initial public offering (IPO). Increasing short-term profitability through unjustified budget cuts, known as myopic management, is proven to have a negative net effect on firm performance in the long run. However, literature yielded scarce results on driving factors of the phenomenon. Building on upper-echelons perspective and agency theory, we employ a sample of 247 firms going public in the U.S. between 2004-2013 with 741 firm-year observations. We hypothesize and find evidence for a positive association of CEO age and a negative association of CEO founding experience with myopic management around IPOs. We also examine the moderating influence of whether the CEO simultaneously functions as chairman, and discuss the ambiguous results. Our manifold contributions to research include shedding light onto organizational antecedents of the harmful practice of myopic management. We also advance IPO literature by providing knowledge on the influence of CEO characteristics on IPO strategies.