CEO ownership and discretionary investments

Aloke Ghosh*, Doocheol Moon, Kishore Tandon

*Corresponding author for this work

Research output: Contribution to journalArticleScientificpeer-review

35 Citations (Scopus)


This study investigates empirically the relationship between CEO ownership and discretionary investments such as R&D and capital expenditures. We assert that the under-investment problem is high for R&D-intensive projects, while the over-investment problem is high for capital expenditures because of differences in risk between the two types of investments. Building on the linkages between investments and investment-related agency problems, we hypothesize that the relationship between CEO ownership and investments depends on whether increasing ownership mitigates or exacerbates the under- or over-investment problem. We find a non-linear association between CEO stock ownership and R&D investments; R&D investments increase and then decline across increasing levels of ownership. Further, we find that R&D investments and CEO stock options are positively associated at high levels of option holdings. In contrast, capital expenditures do not vary with CEO ownership (stock or options). Finally, consistent with our underlying assumption, we find that the influence of R&D investments on future firm risk is significantly larger than that of capital expenditures. Our findings indicate that managerial risk aversion affects discretionary investments.

Original languageEnglish
Peer-reviewed scientific journalJournal of Business Finance and Accounting
Issue number5-6
Pages (from-to)819-839
Number of pages21
Publication statusPublished - 01.06.2007
MoE publication typeA1 Journal article - refereed


  • Agency problems
  • Firm investments
  • Firm risk
  • Managerial risk aversion
  • Ownership structure


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