The Final Countdown: The CEO Horizon Problem In Sweden - An investigation of pre-retirement opportunism among CEOs in Swedish listed firms

Sammanfattning: We examine the effects of CEO retirement on net capital expenditures in Swedish listed firms. Specifically, we investigate whether retiring CEOs in Swedish listed firms act opportunistically prior to retirement, commonly defined as the CEO horizon problem. The CEO horizon problem assumes that a retiring CEO opportunistically maximises short-term personal gains at the cost of the firm's long-term commitment. A sample of 3,538 observations of firms listed on the Stockholm Stock Exchange between 2001-2017 is analysed using several multivariate regression models to detect opportunistic decreases in net capital expenditures before CEO retirement. Our results suggest that CEOs in Swedish listed firms decrease net capital expenditures prior to retirement, indicating that the CEO horizon problem is prevalent in Sweden. Moreover, we find two mitigating factors to the pre-retirement opportunistic behaviour, higher ownership concentration and social identification to a Swedish business sphere. Our study contributes to the literature in three ways. First, our findings imply that pre-retirement opportunism and the CEO horizon problem can exist in what has been argued to be a seemingly low-opportunistic context. Second, we broaden the understanding of the effects of corporate governance mechanisms by showing that higher ownership concentration mitigates the CEO horizon problem. Third, the study highlights the importance of understanding how certain social characteristics of a retiring CEO might impact the CEO horizon problem.