CEO busyness and investment efficiency: evidence from Indonesia

Abstract

Purpose

This study aims to explore the relationship between the level of busyness of Chief Executive Officers (CEOs) and investment efficiency in the context of emerging markets.

Design/methodology/approach

The sample includes firms listed on the Indonesia Stock Exchange from 2010 to 2018 using ordinary least square estimation.

Findings

The findings suggest that companies led by busy CEOs tend to exhibit lower investment efficiency, thus providing support for the hypothesis that as CEOs’ commitments increase, their ability to concentrate on the company diminishes. Furthermore, our analysis reveals that companies with busy CEOs tend to demonstrate a greater tendency to over-invest, potentially in response to market pressures to showcase strong performance. A more in-depth examination of the data shows that the negative impact of busy CEOs on investment efficiency is especially noticeable in firms lacking risk and management committees (RMC).

Practical implications

These findings have substantial practical implications for the structuring and composition of corporate boards. They highlight the significance of conducting comprehensive assessments to gain insights into the external commitments of incoming CEOs.

Originality/value

This study underscores the importance of establishing RMC.

Citation

Harymawan, I., Rahayu, N.K., Kamarudin, K.A., Wan Ismail, W.A. and Ratri, M.C. (2023), "CEO busyness and investment efficiency: evidence from Indonesia", Journal of Financial Reporting and Accounting, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/JFRA-02-2023-0083