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

Zhe Li Orcid Logo, Oksana Pryshchepa, Bo Wang

Journal of Business Finance & Accounting, Volume: 50, Issue: 1-2

Swansea University Author: Zhe Li Orcid Logo

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DOI (Published version): 10.1111/jbfa.12575

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...

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Published in: Journal of Business Finance & Accounting
ISSN: 0306-686X 1468-5957
Published: Wiley 2021
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URI: https://cronfa.swan.ac.uk/Record/cronfa58537
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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 the 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.
Keywords: Investment Efficiency; Top Management Team; Demographic Characteristic; Financial Expert; Experience; Firm Performance
College: Faculty of Humanities and Social Sciences
Issue: 1-2

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