Abstract: This study contributes to the restructuring literature by examining the underexplored psychological impact of the endowment effect in CEOs’ decision making during corporate divestiture. We propose that psychological bias associated with the endowment effect leads to lower levels of divestiture intensity. Specifically, we argue that CEO position tenure and industry tenure are negatively associated with a firm’s divestiture intensity, whereas CEO board memberships lead to greater intensity of divestitures. Our theoretical model further examines the presence of financial advisors as a moderator in mitigating CEO endowment effect during restructuring. Our results, based on data from 230 restructuring programs executed in the United States between 1986 and 2009, show that the endowment effect can explain the variation in firms’ divestment decisions during restructuring.

Abstract: As the dominant decision-maker of an organization, a CEO brings a set of skills and competencies beneficial to the firm to the extent that his skill set matches the conditions faced by the firm. Strategy researchers have particularly been interested in the effects of CEO tenure, arguing that a CEO is most effective during his or her earlier years in office, but his performance deteriorates soon after (Hambrick & Fukutomi, 1991; Miller & Shamsie, 2001). Using a sample of 79 U.S banks prior to the financial crisis, we examine the influence of CEO tenure on the firm’s ability to recognize threat in the declining environment.

Abstract: The concept of economic self-interest plays a central role in most models of CEO decision making, which tend to assume that CEOs are uniformly driven to acquire and protect material wealth. But if CEOs vary in the relative value they place on possessions, they will also vary in their decisions and behaviors. In this study we examine how materialism, or the value placed on material possessions, affects CEOs’ decisions and behaviors. We argue that CEO materialism will lead to more corporate acquisitions, fewer corporate divestitures, and a less democratic TMT work environment. We also propose that CEO compensation will moderate these relationships. We test our ideas on a sample that combines survey data from 61 CEOs and their TMTs with longitudinal archival company financial data.

Abstract: In this study, we argue and find that CEOs who have received exceedingly high total compensation throughout their company tenure have higher tendency to engage in risky behaviors—manifest in voluminous investments and dynamic and nonconforming resource allocation strategies. This effect is more salient when the firm’s relative performance is greater. We also find that underpaid CEOs far below the average tend to engage in large betting through sizable investments and bold experimentation. It is proposed that underlying these seemingly symmetric behaviors which had originated from asymmetric pay packages are different cognitive processes—overconfidence developed from inflated self-attribution of organizational success as opposed to reckless betting as an attempt to reduce the substantial pay lag. We conclude by discussing implications for theory and future research.