CEO career horizon, corporate governance and corporate financial asset allocation: evidence from Malaysia Open Access

Over the past few decades, non-financial companies (NFCs) have increasingly allocated financial assets to sustain operations and achieve profits. Through such allocation, firms can move capital from the real economy to the virtual economy, thereby promoting financial arbitrage as a way to offset underperformance in their core businesses (Chen et al., 2023). However, this behavior may lead NFCs to deviate from their main business investment and crowd out physical investment due to their financial profit-seeking behavior, exacerbating the issue of a shift “from real to virtual”.

Recently, there has been growing interest among academic researchers to ascertain the relationship between the behavior of top managers and corporate policies (e.g. Chen et al., 2023; Guizani and Larabi, 2025). One characteristic that has attracted significant attention in the literature is CEO age (Yim, 2013; Serfling, 2014). As the CEO gets older, age may be systematically related to risk preferences due to changing incentives over the CEO’s career (Croci et al., 2017).

Theoretical and empirical studies indicate that CEO age is a primary determinant of career concerns (Croci et al., 2017; Alfonso et al., 2019; Burney et al., 2021). Within the premise of career stage theory, implicit incentives from career concerns are stronger for CEOs in the early stages of their careers, as they can potentially increase the returns from influencing the market’s perception of their abilities and reputation over a longer period. On the contrary, CEOs in late careers have weaker career concerns because explicit incentives from compensation contracts are more important for those closer to retirement (Li et al., 2017; Alfonso et al., 2019).

Concerns about career risk can generate potential differences in risk preferences among younger and older CEOs (Croci et al., 2017). Therefore, CEOs might engage in different investment strategies based on whether they have greater or fewer career concerns. For instance, Li et al. (2017) argue that, with their long career horizons to reap benefits, younger CEOs are predicted to have stronger incentives to boldly signal ability by adopting a more active and possibly riskier investment strategy. This behavior will ultimately promote projects with long-term value creation over short-term projects to meet long-term goals.

On the other hand, older CEOs tend to be more set in their ways and will avoid taking risks that could disrupt their financial security and social habits (Croci et al., 2017). The implicit incentives arising from older CEOs’ career horizons may alter their inclination toward short-termism in response to the exigencies of short-term profitability attainment (Burney et al., 2021). CEOs in late careers prefer to maintain the status quo, which is consistent with Bertrand and Mullainathan’s (2003) “quiet life” view of what CEOs want. As retirement approaches, managers’ career concerns become less important because compensation contracts are more critical. Older CEOs with shorter career horizons may be incentivized to boost short-term company performance (Guizani, 2024). This is because once they get close to a traditional retirement age, CEOs tend to pay more attention to short-term results and avoid risk (Weihong et al., 2020). Prendergast and Stole (1996) point out that a manager’s concern for his short-term reputation can distort the firm’s investment behavior. When older CEOs must choose their investment preferences and consider risk factors, they often avoid various perspectives that could yield long-term benefits. This is because their incentives often lie in achieving quick and substantial profits (Li et al., 2017).

The risks associated with limited vision and biases highlight the challenges that may arise when older CEOs are involved in investment decision-making. This emphasizes the importance of building robust governance mechanisms, such as independent oversight and diverse board composition, to balance the potential limitations stemming from this involvement.

Agency theory underscores the critical role of the board of directors in addressing the potential conflicts of interest between owners and managers due to differences in goals and incentives (Fama and Jensen, 1983). Through strict supervision, boards can prevent wasteful investment decisions. The board of directors with independent members may have sufficient strength and experience to provide stringent oversight of the actions taken by managers. Oversight of CEOs can also be strengthened by female directors to ensure efficient resource allocation and good corporate governance. Moreover, within the premise of resource dependence theory (Hillman et al., 2007), leveraging the presence of independent directors and female directors on corporate boards as an external resource can strive to enhance financial asset allocation and maximize sustainable growth potential.

Though the relationship between CEO age and managerial decision-making has been well studied, existing research still needs to sufficiently address the dynamic nature of CEO career horizons and their association with corporate financial asset allocation. This oversight underscores the need to delve into the unexplored territory of how the level of CEO career concern can play a crucial role in financial investment decisions. Addressing this gap is imperative to comprehensively understand the intricate dynamics between the implicit incentives from career concerns and corporate financialization.

Based on the literature on career stage, resource dependence, and agency theories, this study investigates the nexus between CEO career horizon and corporate financial asset allocation while considering the moderating role of board independence and female directors.

The current paper seeks to make the following contributions to the existing literature. First, though the association between CEO age and managerial decision-making have been well studied, this paper is the first to assess the relationship between the implicit incentives arising from the CEO’s career horizon and the choice of corporate financialization policies. By revealing how career concerns can create strong incentives for CEOs to take purposeful actions, this study expands our understanding of the role of career horizon in corporate investment choices. Second, it extends the understanding of the factors influencing financial asset allocation, highlighting the moderating role of corporate governance mechanisms. Specifically, by examining the role of board independence and gender diversity in ensuring good corporate governance, this research offers a more detailed and comprehensive analysis, providing specific decision-making bases for investors and enterprises. Finally, the findings equip policymakers with evidence-based strategies to develop regulations that strengthen corporate governance, thereby stabilizing the corporate sector and protecting the broader economy from over-financialization risks.

The rest of this article is organized as follows: The next section reviews prior theoretical literature and formulates hypotheses; the third section outlines the research methodology; the fourth section analyzes the data and discusses the results and the final section presents the conclusion, elaborates on the implications and limitations of the study and provides suggestions for the venue of future research.

This study adopts a multifaceted theoretical perspective, enhancing the depth and comprehensiveness of our research framework. First, we have embraced the career stage theoretical framework to understand the relationship between CEO career horizon and corporate financial asset allocation (Super, 1957). Career stage theory posits that human behavior and attitude alter with each stage of a person’s career. This implies that people behave and think differently during their careers’ beginning, middle, and end. This theoretical framework emphasizes the importance of CEO career concerns in corporate resource allocation. Gibbons and Murphy (1992) assert that career concerns are more important for managers in the early stages of their careers, as that increases the returns from influencing the market’s belief about their abilities. In contrast, career concerns may be less important for managers in the late stages of their careers, as the explicit incentives related to compensation contracts are more important for those closer to retirement.

There may be differences in risk preferences among younger and older CEOs due to concerns about career risk (Croci et al., 2017). Younger CEOs exhibit higher risk tolerance, overconfidence, and optimism. They are thus more willing to engage in risk-taking activities such as more product or market innovation (Serfling, 2014), more acquisitions (Yim, 2013), and more aggressive working capital management (Burney et al., 2021). On the contrary, CEOs with shorter career horizons, such as older CEOs, are more concerned with risk-averse strategies (McClelland et al., 2012). Older CEOs may be more inclined to prefer a quieter lifestyle due to physiological changes (Bertrand and Mullainathan, 2003). This could potentially alter their decision-making regarding corporate policies or events requiring much energy.

CEOs with short career horizons also focus more on strategic activities that increase short-term performance rather than strategic decisions that help maximize shareholder value (Croci et al., 2017). They prefer secure profits over risky ones, leading to excessive financial investments. On the other hand, based on agency theory, CEOs with shorter career horizons may alter investment decisions by changing resource allocations from projects with long-term value creation to short-term projects to meet short-term goals (Cao et al., 2023; Guizani, 2024).

Second, board characteristics, viewed through agency theory, resource dependence theory, and upper echelons theory, are proposed to moderate the CEOs’ incentives. Agency theory underscores the critical role of the board of directors in ensuring managerial actions align with shareholder interests (Fama and Jensen, 1983). Given the board of directors’ control and oversight role, shareholders and other stakeholders can monitor management behavior to minimize management’s opportunistic behavior.

Previous research has shown that board independence is a cornerstone of effective corporate governance. The presence of independent boards can effectively reduce agency costs and enhance corporate resource allocation through their active role in monitoring managers’ behavior and increasing the alignment of managers’ and stakeholders’ interests Agyei-Mensah (2021), Jafeel et al. (2024). Additionally, a diverse board can enhance boards’ independence by adding new perspectives, ideas, and viewpoints to discussions, leading to better decision-making, promoting efficient supervision, and upholding ethical conduct norms (Akter et al., 2024).

However, while agency theory focuses on management opportunism, agency-related costs, and the board’s role as a control mechanism, resource dependency theory places more emphasis on resources as the primary drivers of firm success and disregards incentives that can enhance firm resources (Hillman and Dalziel, 2003). In contrast to the monitoring function of management, it considers the board as a source of strategic resources, including guidance links with the external environment, advice, knowledge, and information provision (Pfeffer and Salancik, 1978).

Viewed through a resource dependence theory lens, a more independent board provides resources such as legitimacy and advice, enhancing the skills, competence, and information required to monitor stakeholders’ interests effectively (Hillman and Dalziel, 2003). Moreover, from a resource-dependence perspective, boards with diverse gender representation play a pivotal role. They are better equipped to establish connections and promote resource allocation through their advisory and counseling functions, underscoring the importance of diversity in board composition (Hillman et al., 2007).

The upper echelons theory by Hambrick and Mason (1984) posits that top management’s perception, value, and cognition are related to their observable characteristics, which are significantly related to a firm’s choices and organizational outcomes. Examining executives’ strategic choices, Bertrand and Mullainathan (2003) find a significant relationship between top managers and resource allocation decisions.

The career stage theory contends that CEOs have varying attitudes toward taking risks in their companies. Their views on the advantages of risky versus conservative policies may depend on the policy in question, and different age groups may adopt different management strategies based on career goals and beliefs about long-term benefits. It follows that CEOs may allocate more or less financial assets based on how they think it will alter their job security, compensation, and future career prospects.

On the one hand, greater career concerns may lead younger CEOs to make bold investment decisions to boost the performance of their firms and shape labor market perception. Younger CEOs have a longer career horizon, allowing them to derive the benefits of long-term investments over a longer period (Burney et al., 2021). Empirical evidence by Yim (2013) reveals that younger CEOs are more likely to engage in merger and acquisition activities because of the long-term compensation benefits of managing bigger firms. Li et al. (2017) show that firms with young CEOs engage in bolder expansions and divestments. Burney et al. (2021) find that younger CEOs adopt more aggressive working capital management strategies. However, as a CEO’s career horizon shortens, he or she is more likely to engage in self-seeking behavior. For example, Serfling (2014) finds that late career-stage CEOs reduce firm risk by adopting less risky investment policies. Weihong et al. (2020) find that the shorter the CEO’s career horizon, the more likely the CEO can avoid risky strategic decisions.

Corporate financialization is considered short-sighted and speculative profit-seeking behavior (Cao et al., 2023; Xie et al., 2023). Thus, to the extent that managers with short-sighted horizons are more concerned with short-term benefits, they increase their investment in financial assets. Therefore, based on the above discussion, we outline the following first hypothesis:

The agency theory recognizes that independent directors could mitigate managers’ opportunistic actions through their active role in management monitoring. Consistent with this view, effective monitoring by independent directors can reveal management’s underlying motivations for financial asset allocation. As a result, investment in financial assets may decrease as CEOs with shorter career horizons may become wary of scrutiny from independent directors during the decision-making process.

Empirical studies provide robust support for the role of board independence in CEO supervision, which in turn prevents waste or careless investment decisions. For instance, Agyei-Mensah (2021) show that independent directors strengthen management control, ultimately driving more effective capital investment decisions. Similarly, Jafeel et al. (2024) report that independent directors make the board more effective in sustaining governance practices and deter management from seizing control of the company’s resources. This results in decreased inefficient investment.

Overall, the presence of independent directors makes the investment process more efficient when older CEOs lead companies. Moreover, oversight by independent directors ensures that older CEOs are not only focused on short-term goals but also consider the long-term implications of their investment decisions. This helps ensure that capital allocation within the company aligns with optimal strategies and supports sustainable growth. Thus, we hypothesize:

Considering the agency perspective, female directors can be a beneficial way to enhance the board’s monitoring role. Previous research has shown that organizations with board gender diversity are better governed, have strict monitoring, and can mitigate the moral hazard issue (Guizani and Abdalkrim, 2022; Farooq et al., 2023). As argued by Akter et al. (2024), a diverse board of directors protects the interests of various owners by minimizing managers’ opportunistic conduct. Through strict monitoring, companies can prevent waste or careless investment decisions, especially when firms are managed by older CEOs.

Second, female directors, viewed through the lens of upper echelons theory, are proposed to moderate the relationship between CEO career concern and financial asset allocation. The upper echelons theory asserts that individual differences among top executives shape corporate strategic decision-making (Hambrick and Mason, 1984). In the context of corporate governance, Chow (2024) reports that age gaps between the chair and CEO precipitate cognitive conflicts, which lead to better monitoring and control. Building on these studies, we postulate that board gender diversity may precipitate cognitive conflicts due to differences in values, beliefs, experience, and attitudes. This results in effective board monitoring to ensure CEOs are more vigilant when developing corporate strategies. Accordingly, women on boards may prevent older CEOs from pursuing opportunistic behaviors, ultimately resulting in the efficient allocation of financial assets. Third, from a resource-dependence perspective, heterogeneity in the boardroom promotes problem-solving, increases leadership effectiveness and effectively facilitates global relationships (Egbunike et al., 2023). The presence of female directors emerges as a pivotal external resource, providing diverse perspectives, skills, and approaches, resulting in efficient resource allocation.

Based on the above discussion, we hypothesize:

Data were collected from the firms listed under the Capital Market Development Fund – Bursa Research Scheme (CBRS). CBRS is a joint effort between the Capital Market Development Fund (CMDF) and the Bursa research scheme “to raise the profile of small and medium firms listed on Bursa Malaysia”. The research variables’ data were collected from the annual reports of 285 firms spanning seven years from 2015 to 2021.

We have excluded the financial and banking companies from the analysis since their financial data is different in reporting due to business and regulatory factors. The companies for which the data have been unavailable for all seven years have been dropped. Our final sample consists of 1,491 firm-year observations and represents 213 firms. It covers six main economic sectors: construction, consumer products, industrial products, plantations, properties, and technology. The present study aims to gather data from secondary sources, including yearly reports, the Bursa Malaysia website, and DataStream. Table 1 presents the sample selection and its distribution among industries.

Since the data in this study comprises multiple firms and spans several years, the panel data model is used to test the hypotheses. Referring to prior studies (Xie et al., 2023; Wang et al., 2024), the following models are constructed:

Where:

Fin_i,t is the degree of current financialization; LnCEO_Age is the natural logarithm of the age of the CEO; Indep is board independence; Fem_dir is female directors; X refers to control variables (see Table 2 for details); Year and Industry are the annual and industrial fixed effects; ε refers to random disturbance terms. Model 1 is used to test hypothesis H1; Model 2 is used to test hypothesis H2; and Model 3 is used to test hypothesis H3.

We perform the quantile regression approach initially introduced by Koenker and Bassett (1978). Compared to the standard ordinary least squares (OLS) estimator, an important benefit of the quantile regression technique is that it comprehensively characterizes the relationship between an outcome variable Y and an input variable X. In addition, quantile regression has stronger robustness in the presence of outliers in one’s data set, as it can control for individual heterogeneity (Conyon and He, 2017). Furthermore, the quantile regression does not only predict the central tendency of the dependent variable (Fin) but also the effect of the independent variable, i.e. LnCEO_Age, on different quantiles of financial investment, especially excess financialization levels, i.e. 75% and 90% quantiles. For this purpose, we estimate four different quantiles of the “Fin” variable: the 25% quantile expresses low levels of financial assets, the 50% quantile is the median level, and the 75% and 90% quantiles express high levels of financial assets.

Explained variable: The level of corporate financialization (Fin). Drawing on previous studies (Xie et al., 2023; Wang et al., 2024; Guizani, 2024), we use the ratio of financial assets to total assets as a measure of the degree of enterprise financialization. Financial assets include those held for trading, available-for-sale financial assets, investment real estate, derivative financial instruments, long-term equity investments, held-to-maturity financial investments, loans, and advances.

Explanatory variable: We measure CEO age with LnCEO_Age, which is constructed as the natural logarithm of the CEO’s age in years (Burney et al., 2021).

Moderating variables: (1) Dummy variable of board independence (Indep). It takes the value 1 if independent directors’ representation on the board is 50% or more and 0 otherwise. We use this threshold because the Malaysian Code of Corporate Governance (MCCG) requires at least half of the board to be independent directors.

(2) Dummy variable of female directors (Fem_dir). It takes the value 1 if women’s representation on the board is 30% or more and 0 otherwise. We use this threshold because the MCCG requires 30% of public business directors to be female.

Control variables: Following prior empirical literature, the study includes a plausible set of control variables in the analysis such as growth, leverage, cash flow, firm size, profitability, firm age and CEO tenure. We also control for year and industry effects by including year dummies and industry dummies. Table 2 presents the detailed definitions and measurements of the variables.

Table 3 presents the descriptive analysis of the variables used in this study. It can be observed that the average value of Fin is 7.3%, ranging from 0% to 52.3%, indicating different levels of financial assets among Malaysian firms. Regarding the independent variable, the mean CEO age is 55.37 years, showing a wide range from 43 to 64 years. This indicates a varied career horizons among CEOs. Moving to moderating variables, board independence highlights that in 43.5% of the sample firms, more than half of the board directors are independent. Meanwhile, board gender reveals an average of 0.156, indicating that approximately 15.6% of the board members are female. For the control variables, the minimum and maximum values of Growth are −0.397 and 1.427, respectively, indicating a large gap in the growth of different enterprises. The sample firms are heavily indebted, as seen by the mean leverage value of 0.572. The average cash flow value is 0.084, ranging from −0.172 to 0.278. As a proxy of firm size, the Log value of total assets ranges from 13.58 to 15.42, indicating that the sample consists of companies of diverse sizes. The average profit value is 0.061, indicating that the profit margin of the enterprises is generally low. Regarding the age of the companies, the range reveals that some companies are very old and some are new, ranging from 4 to 46 years. The average tenure of CEOs is 7.684 years and the longest tenure is more than 18 years.

Table 4 presents the Pearson Correlation, providing an overview of the univariate relationship between variables. It can be observed that the variable LnCEO_Age exhibits a significant positive relationship with Fin at a 1% level of significance. It shows that firms with younger CEOs have a lower level of financialization than their peers with older CEOs. Other variables that show significance with Fin include Growth, Lev, CF, Size, ROA, and Comp_Age. Additionally, Table 4 provides information on the variance inflation factor (VIF) based on the baseline specification (Equation 1). All VIFs are low, with the highest being 2.12. As a result, no multicollinearity exists in the data.

Panel A of Table 5 unveils the baseline regression findings, specifically focusing on Model-1 to gauge the relationship between CEO career horizon and corporate financial asset allocation. Column (1) shows the results of fixed-effects OLS regression. As shown in the table, the coefficient of LnCEO_Age is significantly positive, indicating that CEO age amplifies the level of financial investment, consistent with Hypothesis 1.

The quantile regressions (columns 2 to 5) show different results depending on the quantiles (corporate financialization levels). At the lowest quantiles (25% and 50%), the results show insignificant positive coefficients, suggesting that CEO age has no association with holding high levels of financial assets. However, at the highest quantiles (75% and 90%), representing excessive financialization, the results show positive coefficients that are statistically significant at the 1% level. This result corroborates the view that firms managed by older CEOs tend to allocate more financial assets in response to the exigencies of short-term profitability attainment. One major concern is the risk of limited vision of late career-stage CEOs, which may disrupt their financial security and social habits (Croci et al., 2017). The short-term focus on faster-returning initiatives motivates older CEOs to urge companies to allocate more financial assets, given the short return period associated with financial investments (Chen et al., 2023). By contrast, younger CEOs inhibit short-sighted financialization behavior and are more likely to focus on sustainable development goals. Because of career concerns, younger CEOs are strongly incentivized to alter their firms’ investment decisions to boost long-term performance. Younger CEOs have a longer career horizon to reap the benefits of long-term investments. Furthermore, early career-stage CEOs are more willing to undertake long-term projects as signals of their ability to enter the executive labor market. This results in a lower level of financialization.

These findings align with the career stage theory, which posits that human behavior and attitude change with each stage of a person’s career (Super, 1957). CEOs with shorter career horizons, such as older CEOs, are more concerned with risk-averse strategies (McClelland et al., 2012) and may be more inclined to prefer a quieter lifestyle due to physiological changes (Bertrand and Mullainathan, 2003). Therefore, when making investment decisions, short-sighted managers would be inclined to allocate more financial assets, thus exacerbating the degree of firms’ over-financialization (Guizani, 2024).

The observed results are consistent with Corci et al. (2017), Li et al. (2017), and Burney et al. (2021), who concluded that younger CEOs tend to take risky actions to signal their abilities due to higher levels of career concerns, resulting in long-term bolder investments. However, older CEOs with shorter career horizons tend to avoid risky investment policies (Serfling, 2014; Weihong et al., 2020).

In Panel B of Table 5, where the moderating role of board independence is considered, the results of OLS regression show a significant negative relationship, unexpectedly reversing the previously positive relationship between CEO age and financial investment to a significant negative one (coefficient = −0.122, t = −2.85), consistent with Hypothesis 2. The results also reveal that board independence (Idep) is negatively associated with financial asset allocation (Fin) at the 5% significance level, with a regression coefficient of −0.134. This implies that independent directors urge companies to focus on sustainable development goals and inhibit short-sighted financialization behavior.

In addition, at the highest quantiles (75% and 90%), the results clearly show a negative and significant moderating effect of board independence on the relationship between CEO age and corporate financialization. These results suggest that the association between CEO age and financial investment is less pronounced when board independence is high. This proves that the higher the proportion of independent directors, the stronger their control ability over the firm. Hence, independent directors will focus more on safeguarding shareholders’ interest in reducing the financialization level. These findings indirectly acknowledge the risks related to implicit incentives from career concerns that trigger a manager’s choice of strategies to achieve earnings targets (Alfonso et al., 2019). Although older CEOs tend to direct funds toward financial assets, the presence of independent directors serves as an internal oversight mechanism. Board independence here acts as a moderator, reducing agency conflicts and promoting alignment between shareholder interests and managerial actions. Through their active role in questioning and evaluating management, independent directors can pressure older CEOs to adopt more efficient resource allocation practices. Consequently, independent directors’ effective monitoring can reduce the excessive financial investment of older CEOs. Oversight by independent directors makes the financial resource allocation more efficient when companies are led by older CEOs. This helps ensure that capital allocation within the company aligns with optimal strategies and supports sustainable growth. This result is consistent with Chen (2012) and Agyei-Mensah (2021), who reported that independent directors strictly control managers, ensuring that resources are allocated and utilized efficiently.

Model (3) is estimated to empirically examine the moderating role of female directors on the relationship between CEO age and financial asset allocation. Pane C of Table 5 reports the regression results. The OLS regression results in column (1) indicate that the interaction term between CEO age and female directors is negatively related to financial asset allocation at the 10% significance level, with a regression coefficient of −0.084, thus supporting Hypothesis 3. Our results also show a negative association between the presence of female directors and corporate financialization. This empirical result shows that a high number of women directors on corporate boards reduces investment in financial assets and thus decreases corporate financialization.

In addition, the results of the quantile regressions clearly show a negative and significant moderating effect at the 5% level of women representation on the board (more than 30%) for the 75% and 90% quantiles (i.e. for high proportions of financial assets held). This indicates that the presence of female directors moderates the relationship between CEO age and financial asset allocation, suggesting that while firms with older CEOs might generally seek more financial assets, those with more female directors are less likely to increase their financialization significantly. This could be due to female directors providing effective monitoring to ensure CEOs are more vigilant when developing corporate strategies. This finding is consistent with the argument that female directors are active and likely to curb the speculative profit-seeking behavior of managers (Guizani and Abdalkrim, 2022; Farooq et al., 2023). This result aligns with the agency theory that the presence of women on the board is one of the effective mechanisms for dealing with agency conflicts and restricts managers from misappropriating shareholders’ wealth (Akter et al., 2024). This improved governance by female directors results in efficient resource allocation. The result also aligns with the upper echelons theory that board gender diversity may precipitate cognitive conflicts due to differences in values, beliefs, experience, and attitudes, which results in effective board monitoring. In addition, our finding is consistent with the resource dependence theory (Hillman et al., 2007). Within the premise of this theory, the infusion of diverse perspectives through women on the board serves as a vital external resource, profoundly influencing managerial actions and promoting internal resource allocation. Thus, leveraging female directors as an external resource not only reduces excessive financialization but also robustly alleviates the positive association between CEO age and financial asset allocation.

We conducted several additional tests to verify the robustness of our findings. First, we re-estimate our baseline regression using excess financialization as an alternative measure of financial asset allocation. To determine the level of excess financialization, we estimate the actual level of financialization (the “normal” level) by controlling for the determinants of corporate financialization. Consistent with the existing literature (Xie et al., 2023; Guizani, 2024), the following model is constructed to fit the normal financial level of firms:

Excess financialization is derived from equation (4) as the positive difference between the actual level of financialization and the expected optimal level, i.e. the positive residual of the above model according to the study of Xie et al. (2023) and Guizani (2024).

We also propose the following model to test the relationship between CEO career horizon and over-financialization by using logit regression:

Exfin_dummy is a dummy variable that reflects whether the firm is over-financialized. Regarding Equation (4), when the actual level of financialization is greater than the normal level, the company is over-financialized. Then, the Exfin_dummy value is 1; otherwise, it takes 0 (Xie et al., 2023; Guizani, 2024).

Table 6 reports the regression results with LnCEO_Age as the independent variable. The coefficients of LnCEO_Age are positive and significant across the two regression methods, confirming the robustness of our findings. Overall, these findings imply that, when making investment decisions, short-sighted managers would be inclined to allocate more financial assets, thus exacerbating the degree of firms’ over-financialization.

Propensity Score Matching (PSM), as proposed by Rosenbaum and Rubin (1983), can help mitigate the endogeneity problem associated with self-selection bias. PSM is implemented by categorizing the panel into two groups, namely the Treated group (Under 50 = 1) and the Control group (Under 50 = 0). We conducted a logit regression to predict propensity scores, with Under 50 as the dependent variable that equals one if a CEO is 50 years old or younger and zero otherwise. The predicted estimates are used as the propensity scores for each firm-year observation. In the second step, each firm-year observation with a CEO of 50 years or younger is matched to another with a CEO over 50 years with the closest propensity score. We report results based on the matched sample in Table 7, column 1. Despite reducing the number of observations, the findings align with our hypothesis. The consistent results of the PSM analysis suggest that the potential concern regarding endogeneity is unlikely to contaminate our conclusion.

We also conducted a dynamic generalized method of moments (GMM) estimator model to ensure the results’ robustness. This method offers robustness against issues like unobserved heterogeneity, reverse causality, and dynamic endogeneity within the explanatory variables (Roodman, 2009). To deal with endogeneity and simultaneity, Arellano and Bond (1991) and Blundell and Bond (1998) suggested the dynamic GMM estimator. GMM panel estimates are based on two fundamental assumptions: there is no serial correlation between the error term and the lagged instruments used, which are sufficient to explain the model. As a result, AR (1) and AR (2) are tested for first-order and second-order serial correlation, respectively. Serial correlation was demonstrated by rejecting the null hypothesis of first-order serial correlation (AR1). Nevertheless, the absence of second-order serial correlation (AR2) was not rebutted. The Hansen J-statistics of over-identifying restrictions test the null hypothesis of instrument validity. The Hansen J-statistics’ insignificance indicates the instruments’ validity in their respective estimations. Finally, the number of instruments (i.e. 143) used in the model is less than the panel (i.e. 213), which adds to the reliability of the Hansen J-statistics. The results are consistent with the primary findings of the study, which indicate a positive and significant relationship between CEO age and financial asset allocation, as shown in Table 7. Therefore, it can be inferred that there is no substantial evidence of endogeneity issues.

This study investigates the relationship between CEO career horizon and financial asset allocation, with board independence and gender as moderating factors. The study’s sample consists of 1,491 firm-year observations of Malaysian listed firms between 2015 and 2021. Utilizing a quantile regression approach, the findings indicate that the association between CEO age and financial asset allocation is positive and statistically significant. Thus, older CEOs with shorter career horizons are more concerned with short-term benefits, thereby increasing corporate financial investment. Additionally, having more independent directors and diversity in terms of gender on the boards weaken the positive link between CEO age and financial asset allocation. This revealed that firms with high board independence and those with high female board representation tend to focus less on short-term projects, thereby limiting short-term financial investments.

These findings carry substantial implications for researchers, practitioners, and policymakers. For researchers, this study finds prominent differences in corporate financialization related to each stage of a person’s career. All these findings should be considered in future related research to improve the validity and reliability of empirical results and provide better insight into research questions. For practitioners, the study emphasizes how crucial it is to consider CEO qualities when choosing leaders and developing succession plans at the practical level of corporate governance processes. The research findings also provide policy implications for regulators and policymakers to undertake the necessary measures to optimize corporate governance standards and restrict managers’ short-termism. The study provides investors with insightful information about the possible relationship between CEO traits and company performance, especially about measures for managing financial resources. By understanding the psychological characteristics of CEOs, investors could anticipate the company’s response to various market situations and optimize investment strategies according to individual leadership profiles.

Although this study has important implications, it has some limitations that pave the way for future research. First, longer-term research would provide a more thorough grasp of how CEO career horizon shapes corporate financial asset allocation by accounting for changes in the economy’s state and corporate governance over time. Furthermore, broadening the study’s focus to include companies from other cultural backgrounds will allow for cross-cultural analysis, revealing contextual variables and global patterns influencing this link. Finally, given that not all CEOs have the same career concerns and investment preferences, as these refer to the psychological characteristics of CEOs, future research could consider that the personality and psychological orientation of CEOs can be significantly related to business strategies, decision-making, and overall company performance.

The author extends his appreciation to the Arab Open University for funding this work (No: AOUKSA-524008).