CEO Duality Leadership

A commonly held view is that a hazardous short-termism has taken hold across the publicly held firms. Critics say that top managers have become myopic due to capital market pressures which may lead them into negative career consequences (e.g., executive dismissal) if they miss quarterly earnings forecasts by security analysts. As a result, business press and general public express concerns that companies may have become to invest too little. This study examines whether CEO duality leadership structure can mitigate this myopic behavior in the context of corporate R&D investments under the pressures from the capital market intermediaries, securities analysts. We hypothesize that if CEO duality leadership leverage ‘unity of command’, they may differ on the myopic behavior on R&D investments but this view was not supported by empirical results. So we turn to agency theorists who argue that CEO duality will become the entrenched power at the top by holding two most powerful positions -the CEO and board chair - to benefit themselves for short-term profits at the expense of long-term competitive advantage. This study shows, though preliminarily, that CEO duality tend to cut R&D investments when the CEO faces the pressures from the capital market, especially when they miss the performance target, which is consistent with the managerial entrenchment hypothesis. We test these hypotheses by a large-scale, cross-industry data from a sample of U.S. manufacturing firms during the period of 1992 to 2015. With regard to theory, this research offers fresh implications for CEO duality literature on the interaction with capital market. With regard to practice, it shed light on the dark side of market feedback by securities analysts and calls for curtailing the ‘short-termism’ of capital markets and supports the corporate reforms on separating the role of chief executive officer and board chairperson.