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Financial experts on the top management team: do they reduce investment inefficiency?

Financial experts on the top management team: do they reduce investment inefficiency?
Financial experts on the top management team: do they reduce investment inefficiency?
We examine the effect of Top Management Team (TMT) professional finance experience on firm investment efficiency. Top managers with a career background in finance help reduce deviations of investment from the level warranted by firm fundamentals. Reductions in investment inefficiencies are achieved by financial expert managers using project-specific, rather than company-wide, discount rates for project evaluation and facilitating debt and equity issuance at lower costs. Greater investment efficiency due to financial expertise of TMT improves firm performance. We demonstrate that these improvements are driven by the collective expertise of the TMT, rather than solely by chief executive officers.
demographic characteristic, experience, financial expert, firm performance, investment efficiency, top management team
0306-686X
Li, Zhe
ee8b16f0-e581-4337-bdd1-b3afeae1b1d6
Pryshchepa, Oksana
bf457f09-09d3-4e76-b730-51394aae49e3
Wang, Bo
dc1fccae-55e8-4d28-8eb9-1c539247e940
Li, Zhe
ee8b16f0-e581-4337-bdd1-b3afeae1b1d6
Pryshchepa, Oksana
bf457f09-09d3-4e76-b730-51394aae49e3
Wang, Bo
dc1fccae-55e8-4d28-8eb9-1c539247e940

Li, Zhe, Pryshchepa, Oksana and Wang, Bo (2021) Financial experts on the top management team: do they reduce investment inefficiency? Journal of Business Finance & Accounting. (doi:10.1111/jbfa.12575). (In Press)

Record type: Article

Abstract

We examine the effect of Top Management Team (TMT) professional finance experience on firm investment efficiency. Top managers with a career background in finance help reduce deviations of investment from the level warranted by firm fundamentals. Reductions in investment inefficiencies are achieved by financial expert managers using project-specific, rather than company-wide, discount rates for project evaluation and facilitating debt and equity issuance at lower costs. Greater investment efficiency due to financial expertise of TMT improves firm performance. We demonstrate that these improvements are driven by the collective expertise of the TMT, rather than solely by chief executive officers.

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Accepted/In Press date: 2 November 2021
Keywords: demographic characteristic, experience, financial expert, firm performance, investment efficiency, top management team

Identifiers

Local EPrints ID: 452652
URI: http://eprints.soton.ac.uk/id/eprint/452652
ISSN: 0306-686X
PURE UUID: c17d18f0-bfd1-403e-b75a-86962f941357
ORCID for Bo Wang: ORCID iD orcid.org/0000-0001-9417-2214

Catalogue record

Date deposited: 11 Dec 2021 11:30
Last modified: 28 Apr 2022 02:33

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Contributors

Author: Zhe Li
Author: Oksana Pryshchepa
Author: Bo Wang ORCID iD

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