Subordinate Executives’ Horizon and Firm Policies

Motivated by the internal governance theory, we investigate the links between subordinate executives' horizon and firm policies. Using the number of years to retirement to capture subordinate executives' horizon inside the firm, we find that subordinates' horizon is positively associated with firm's risk-taking, long-term investments growth, and research and development productivity, but negatively related to the dividend decision and the payout ratio. We also find a positive relationship between subordinates' horizon and firm value. Our results are robust to controlling for alternative explanations including the pay gap between CEO and subordinate executives, executives' overconfidence, CEO's decision horizon, and other governance mechanisms. The results are also robust to alternative measures of subordinates' horizon, and after addressing potential endogeneity concerns.