CEO decision horizon and corporate R&D investments: an explanation based on managerial myopia and risk aversion

Abstract

Abstract Combining the views of managerial myopia and risk aversion, we argue that a short decision horizon could divert corporate investments away from R&D investments. We devise an industry‐adjusted measurement combining CEO’s expected tenure and age as a proxy for CEO decision horizon and find a positive relationship between the horizon and corporate R&D investments. The relationship is stronger among firms with lower industry‐level income volatility and lower firm‐level performance pressure. The results also show that CEO age is more important than CEO tenure in affecting the decision horizon. Further analyses indicate that risk aversion determines the studied relationship.