{"title":"Tournament incentives, corporate overinvestment, and economic consequences","authors":"Heeick Choi , Khondkar Karim , Yin Liu","doi":"10.1016/j.irfa.2025.104090","DOIUrl":null,"url":null,"abstract":"<div><div>This study examines the effect of promotion-based tournament incentives on firms' propensity to overinvest and its economic consequences. We find that tournament incentives are positively associated with corporate overinvestment. Furthermore, we show that the relation between tournament incentives and overinvestment has a positive effect on top executives' internal promotion but a negative effect on future firm performance. Our results are robust to an alternative measure of overinvestment, two-stage instrumental variable analyses, and change specification tests. Overall, we suggest that promotion-based tournament incentives increase corporate overinvestment, resulting in a high chance of CEO promotion at the expense of future performance.</div></div>","PeriodicalId":48226,"journal":{"name":"International Review of Financial Analysis","volume":"102 ","pages":"Article 104090"},"PeriodicalIF":7.5000,"publicationDate":"2025-03-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"International Review of Financial Analysis","FirstCategoryId":"96","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S1057521925001772","RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 0
Abstract
This study examines the effect of promotion-based tournament incentives on firms' propensity to overinvest and its economic consequences. We find that tournament incentives are positively associated with corporate overinvestment. Furthermore, we show that the relation between tournament incentives and overinvestment has a positive effect on top executives' internal promotion but a negative effect on future firm performance. Our results are robust to an alternative measure of overinvestment, two-stage instrumental variable analyses, and change specification tests. Overall, we suggest that promotion-based tournament incentives increase corporate overinvestment, resulting in a high chance of CEO promotion at the expense of future performance.
期刊介绍：
The International Review of Financial Analysis (IRFA) is an impartial refereed journal designed to serve as a platform for high-quality financial research. It welcomes a diverse range of financial research topics and maintains an unbiased selection process. While not limited to U.S.-centric subjects, IRFA, as its title suggests, is open to valuable research contributions from around the world.
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