Abstract

Existing studies on horizon problem have investigated the short-term fluctuation of firm performance prior to the normal CEO retirement age of 65. Based on a sample of 1,940 CEOs in 1,390 industrial firms, we examine the change of firm performance over the entire CEO aging process. Empirical evidence shows that CEO age is negatively associated with firm growth and firm market value, and the sensitivity of these two relations diminishes along the CEO aging process. The association between age and firm profitability is conditional on firm size. In particular, we find a positive relation among younger CEOs in small firms and a negative relation among older CEOs in large firms. In this paper, we also examine the likelihood of CEO continuation beyond the regular retirement age of 65. Our empirical results show that stock ownership and firm growth increase the likelihood of delayed retirement past age 65, whereas firm-specific tenure and non-incentive compensation increase the likelihood of scheduled retirement at age 65. In addition, CEOs in small firms and CEOs recruited from outside are more likely to stay longer in their office.