The investment behavior of the typical CEO varies over her tenure period. This study shows that the CEO tenure cycle is as powerful as other factors such as the business cycle and industry changes that affect investment. It is also independent of the circumstances of the CEO's appointment.
The new CEO is busy divesting the poorly performing assets that were the responsibility of the replaced CEO. New assets, and employee growth, are well below average during the first three years following the CEO's appointment. Over time the new CEO gains more power over the Board (which contains more of his appointments to the Board). The CEO then begins a new investment cycle which is designed to increase the CEO's utility. The new investments are typically viewed negatively by investors. The more powerful CEO is more interested in increasing personal utility than in increasing shareholder value. Eventually, the CEO loses control over the Board and they search for a replacement who will focus on increasing shareholder value. That sets the stage for a new CEO and a new CEO investment cycle.