East, West, Home's Best: Do Local CEOs Behave Less Myopically?

Abstract

We test whether CEOs working near their childhood homes are less likely than nonlocal CEOs to make myopic decisions. Place attachment theories suggest that people develop mutual caretaking relationships with their birthplaces. Also, executive labor markets face less information asymmetry about local CEOs, resulting in lower pressure on local CEOs for quick profits. Consistent with the prediction, we find that local CEOs are less likely to cut R&D expenditures for beating analyst forecasts or avoiding earnings decreases. In their last year of office, local CEOs are significantly less likely to cut R&D than nonlocal CEOs. The CEO locality effect is stronger when more local business interests are embedded in the firm and when the residents of the CEO's birth state have stronger local social bonds. Local CEOs' longer horizons are consistently manifested in their other decisions, such as paying more state tax and being more socially responsible in business operation. JEL Classifications: G10; G23; M40.

CEO compensation, CEO attributes and tax aggressiveness: evidence from French firms listed on the CAC 40

“…The foreign CEO exhibits a significant positive effect on the tax aggressiveness level (p-value = 0.033, jZj = 2.13), which confirms our second hypothesis. This finding is consistent with the study of Lai et al (2019). Indeed, compared to local CEOs, foreign CEOs are more opportunistic, as they choose to use more tax aggressiveness practices.…”

“…We follow Phillips's study ( 2003), and we measure the CEO compensation (CEO_COMP) by the log of related performance compensation in euro. The foreign CEO (FOREIGN_CEO) is a dichotomous variable, which equal to 1 if the CEO's birth state is not France, and 0 otherwise (Lai et al, 2019). In accordance with Huang and Zhang's study ( 2019), the CEO expertise (CEO_EXP) is equal to 1 when the CEO has knowledge of accounting, and 0 otherwise.…”

“…Thus, local CEOs are more motivated toward ensuring the company performance. In addition, Lai et al (2019) prove that compared to foreign CEOs, local CEOs have engaged more in making decisions about paying more state tax in the long term. Hence, local CEOs seem to be more responsible and less opportunistic, as they prefer preserving the performance of the firm.…”

“…For Yonker (2017a), CEOs' local compensation is also lower than that of nonlocal CEOs. According to Lai et al (2019), local CEOs within the firm ensure its financial performance. Thus, local CEOs are more motivated toward ensuring the company performance.…”

Earnings pressure and R&D cut: the moderating effects of family control and debt

“…Prior studies also reveal that managerial decisions about cutting R&D have been influenced by several factors, such as the chief executive officer (CEO) locality (Lai et al , 2020), the foreigner ownership (Kim, 2011), etc. We, consistent with Guo et al (2019), found that stock analysts could have significant impacts on these decisions through their forecasts.…”