Title: Market reaction to capital expenditures of powerful CEOs

Authors: Anwar Boumosleh; Elias Raad

Addresses: Department of Finance, School of Business, Lebanese American University, P.O. Box 13-5053, Beirut, Lebanon. ' Department of Finance, School of Business, Lebanese American University, P.O. Box 13-5053, Beirut, Lebanon

Abstract: It is controversial whether governance structure affects the value of the firm. This paper examines the sensitivity of firm value to capital expenditure under various levels of CEO power. The paper uses two measures of CEO power and finds that the greater the power of the CEO the less the increase in market value for a given increase in capital spending. The results are robust to the inclusion of firm and governance characteristics and indicate that the market is weary of investment decisions made by powerful CEOs.

Keywords: corporate governance; agency problem; CEO power; capital expenditure; Chief Executive Officer; market value; investment decisions.

DOI: 10.1504/IJFSM.2012.048850

International Journal of Financial Services Management, 2012 Vol.5 No.4, pp.356 - 368

Available online: 31 Aug 2012 *

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