CEO age and corporate financialization: evidence from Malaysia

• Date: 15 August 2024
• Pages: 909-929
• DOI: https://doi.org/10.1108/IJAIM-02-2024-0060
• Published date: 15 August 2024
• Subject Matter: Accounting & finance,Accounting/accountancy,Accounting methods/systems
• Author: Moncef Guizani

CEO age and corporate

f‌inancialization: evidence

from Malaysia

Moncef Guizani

Faculty of Business Studies, Arab Open University, Riyad, Saudi Arabia

Abstract

Purpose –This study aims to examine the impact of CEO age on corporate f‌inancialization by considering

the moderatingeffects of CEO gender, identity andtenure in this relationship.

Design/methodology/approach –The analyses use ordinary least squares across 213 nonf‌inancial f‌irms

listed in Bursa Malaysia throughout 2015–2021. The author addresses potential endogeneity through

propensity score matchingand the generalized method of moments. The results are also robustto alternative

measuresof corporate f‌inancialization and CEO age.

Findings –The results show that f‌irms with youngCEOs are more likely to avoid taking short-term f‌inancial

investments and, as a result, inhibit corporate f‌inancialization. Furthermore, the f‌indings indicate that f‌irms

with female CEOs and those with family membersas CEOs are less likely to invest in f‌inancial assets. The

results also show that corporate f‌inancialization is weakened in the early stages of CEO tenure and

strengthenedin the late stages.

Practical implications –The empirical results have usefulpolicy implications. For researchers, this study

f‌inds prominent differences in corporatef‌inancialization related to each stage of a person’s career.The study

f‌indings can be used by policymakersto guide programs that attempt to undertake the necessary measuresto

optimize corporate governancestandards and restrict managers’shortsighted conduct. In the long run, these

kinds of projects could improve the way surplus f‌inancial reserves are used and raise economic output in

general. The studyalso provides investors with insightful informationabout the possible relationship between

CEO traits and companyperformance, especially with regard to measuresfor f‌inancial resource allocation.

Originality/value –This paper expands the existingresearch on corporate investment behavior and provides

a new theoretical basis for the underlying factors of corporate f‌inancialization. It studies the inf‌luence of

managerial traits on corporate f‌inancialization and deepens the understanding of CEO age and companies’

f‌inancializationlevels.

Keywords Corporate f‌inancialization, CEO age, Career concern

Paper type Research paper

1. Introduction

In recent years, corporate f‌inancial decision-making has shifted from “retain and reinvest”to

“downsize and distribute”as a result of the transformation of corporate structures (Lazonick and

O’Sullivan, 2000). Xu and Guo (2023) noted that nonf‌inancial businesses are becoming more

f‌inancially focused due to the economy’s shift toward virtualization. The relationship between

the nonf‌inancial corporate sector and f‌inancial markets has become more profound and

complex. Orhangazi (2008) reported that nonf‌inancial corporations (NFCs) have allocated more

funds toward f‌inancial assets and have derived a larger share of their income from these

The author extends his appreciation to the Arab Open University for funding this work through

research fund No. AOUKSA-524008.

International

Journal of

Accounting &

Information

Management

909

Received15 February 2024

Revised24 July 2024

Accepted24 July 2024

InternationalJournal of

Accounting& Information

Management

Vol.32 No. 5, 2024

pp. 909-929

© Emerald Publishing Limited

1834-7649

DOI 10.1108/IJAIM-02-2024-0060

The current issue and full text archive of this journal is available on Emerald Insight at:

https://www.emerald.com/insight/1834-7649.htm

investments. This has increased the use of f‌inancialization to generate more revenue in the short

term (Doruk and Ergun, 2023). However, this behavior may lead NFCs to deviate from their

main business investment and crowd out physical investment due to th eir f‌inancial prof‌it-

seeking behavior. Therefore, an important challenge for f‌irms conducting business operations is

dealing with resource allocation and investment decisions.

Firms have the motivations and pressures to strategize on a level of f‌inancialization that

balances both marginalreturns and costs of investing in f‌inancial assets, and there are various

managerial incentives for setting the appropriate strategy. Since much of their use is

discretionary,f‌inancial assets are relatively vulnerable to managers’opportunisticbehavior.

Recognition of the increasing importance of f‌inancialization activities has triggered a

debate about the factors inf‌luencinga f‌irm’s commitment to these activities. Althougha large

body of literature has mainly focused on factors such as monetary policy, economic policy

uncertainty,corporate risks and government funding (e.g. Peng et al., 2018;Qi et al., 2021),

there is relatively little attentiongiven to the role managers play in corporate f‌inancialization

decisions. This study aims to f‌ill the research gap by questioning and exploring the

relationship between CEO age and corporate f‌inancialization in the context of a developing

Southeast Asian country(Malaysia).

The role of CEOs in guiding corporate investment decisions has received signif‌icant

attention in both academic research and discussions of corporate governance (e.g. Yim,

2013;Serf‌ling, 2014;Burney et al., 2021). In spite of an enormous volume of research, the

effect of CEO age on corporatepolicies and risk-taking remains equivocal.

In various strands of literature, a CEO’s age is critical to their career concerns (e.g. Li

et al., 2017;Croci et al., 2017;Alfonso et al., 2019), which can signif‌icantly impact the

allocation of a company’sinternal resources. For instance, younger CEOs with higher career

concerns possess the potential to advance the company’s vision and mission to inf‌luence the

labor market’s perception favorably. Furthermore, younger CEOs have a longer career

horizon over which they can reapthe benef‌its of long-term investments (Burney et al., 2021).

This behavior will ultimatelypromote projects with long-term value creation over short-term

projects to meet long-termgoals.

Conversely, younger CEOs are incentivized to engage in more aggressive investment

decision-making when considering dismissal risk due to poor performance. They tend to

prioritize projects that promise substantial prof‌its, sometimes at the expense of giving less

attention to associated risks and costs. Their incentive often lies in achieving rapid and

substantial returns(Gan, 2019).

Additionally, there is a potential conf‌lict of interest concerning the pursuit of short-term

prof‌its. As retirement approaches, managers’career concerns become less important because

compensation contracts are more critical. In such cases, older CEOs with shorter career horizons

may be incentivized to boost short-term company performance to maximize their compensation

(Jeong, 2020). Consequently, older CEOs tend to make investment decisions more focused on

personal gain or short-term f‌inancial performance than the company’s long-term interests.

We focus on Malaysianf‌irms because they provide an ideal setting to examine the nexus

between CEO age and corporate f‌inancialization for the following reasons: f‌irst, as

Malaysia’sf‌inancial institutions continue to develop, the trend of economic f‌inancialization

is becoming increasingly evident. According to Rethel (2010), Malaysian f‌inancial

policymaking has become more market-oriented since the 1997–1998 crisis, ensuing an

increased f‌inancialization of Malaysian capitalism. Furthermore, the state has been a key

driver of f‌inancialization. In fact, it is through the transformation of institutions under the

purview of the state that f‌inancialization has increasingly become embedded in Malaysian

capitalism. Second, in Malaysia, the principles and best practices of good governance are

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