We examine the career horizon problem of CEOs using data of listed U.K. companies that are required to disclose full executive compensation information including that of pensions. Our main findings are listed as follows. Firstly, we observe that in general CEOs do not curtail research & development investments as their career horizons become shorter. However, we find that CEOs closer to retirement and with substantial entitlement to defined benefit pensions reduce R&D investments. Secondly, we find that CEO’s defined benefit pension discourages research and development investment in general. Thirdly, we observe that the financial crisis has a great impact on young CEOs’ attitude to risk. Prior to the financial crisis, young CEOs will not curtail research and development investment no matter they have defined benefit pension or not. After the financial crisis, young CEOs are less likely to spend on research and development investment if they have more defined benefit pension. Our findings reconcile the conflicting results documented in previous studies on the career horizon problem and demonstrate that defined benefit pensions make CEOs more risk-averse.
|Number of pages||35|
|Publication status||Unpublished - 16 Dec 2014|