Do Long-Term Institutional Investors Prefer Future-Focused CEOs?
Agency theory has long discussed the misalignment between the interests of long-term institutional investors and CEOs. We postulated that future-focused CEOs might mitigate the agency problem as they are more likely to consider long-term goals as more important and invest accordingly. Our analysis drawing on data from 17,983 firm-year observations between 2001 and 2016, however, did not support our initial argumentation. In contrary, it showed a positive relationship between quasi-indexers and investment advisors, both considered as long-term investors, and past-focused CEOs. The possible explanation for this finding draws on the information asymmetry between investors and CEOs. A long-term investment is associated with uncertainty, which prevents the transparency needed to mitigate the information asymmetry. Our study contributes to agency theory and the micro-foundation of strategic management.