Empire-building or bridge-building evidence from new CEOs' internal capital allocation decisions

Yuhai Xuan

Research output: Contribution to journalArticlepeer-review


This article investigates how the job histories of CEOs influence their capital allocation decisions when they preside over multidivisional firms. I find that, after CEO turnover, divisions not previously affiliated with the new CEO receive significantly more capital expenditures than divisions through which the new CEO has advanced. The pattern of reverse-favoritism in capital allocation is more pronounced if the new CEO has less authority or if the unaffiliated divisions have more bargaining power. I find evidence that having a specialist CEO negatively affects segment investment efficiency. The results suggest that new specialist CEOs use the capital budget as a bridge-building tool to elicit cooperation from powerful divisional managers in previously unaffiliated divisions.

Original languageEnglish (US)
Pages (from-to)4919-4948
Number of pages30
JournalReview of Financial Studies
Issue number12
StatePublished - Dec 2009
Externally publishedYes

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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