CEO career horizon problem in family business

Lorenzo Congiu, 2011

Abstract

This study develops further on the concept of career horizon problem of CEOs near retirement and its influence on firm risk-taking, in particular on the firm engagement in foreign acquisitions. Building on this concept and on agency and stewardship theory, this thesis investigates how family ownership and membership of the business owning family accentuate or mitigate the CEO career horizon problem. By using the context of international acquisitions with a sample of 264 U.S.-incorporated firms over a time period of 13 years (1997-2009), this study has tested this model. I find a confirmation that a CEO with a shorter horizon is less associated with firm engagement in foreign acquisitions. I also find that the presence of family ownership moderates this association by making it less positive and that this relationship becomes negative in case of a family CEO. This thesis raises important reflections about the CEO career horizon problem by showing that family ownership and membership mitigates this problem. The findings might imply that CEOs in family firms or who are member of the firm owning family may need less incentives in their compensation scheme to align their interest horizon with the principals’ horizon.

Keywords

family business, career horizon, risk-taking, agency theory, stewardship theory