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Too good or not by hiring insider CEO: an analysis preference of investment efficiency from Indonesia

Mohammad Nasih, Nadia Anridho, Iman Harymawan, Suham Cahyono, Shaista Wasiuzzaman

Corporate Governance

ISSN: 1472-0701

Article publication date: 1 January 2025

94

Abstract

Purpose

The term “Insider CEO” refers to actor in the top management at corporate level who has the advantage of having better information regarding a company’s resources to make investment decisions. This study aims to examine the relationship between insider chief executive officers (CEOs) and investment efficiency in emerging economies.

Design/methodology/approach

The authors comprises sample of nonfinancial companies listed on the Indonesia Stock Exchange during the period of 2011–2021, using an archival approach through regression analysis.

Findings

This study demonstrates a significant negative relationship between insider CEOs and investment efficiency. In addition, audit quality as the firm audited by BIG4 accounting firm changes the direction of previously negative findings, turning them into significant positive relationships, and audit quality acts as a moderating factor on the insider CEOs and investment efficiency nexus. Furthermore, the authors conducted a series of endogeneity and robustness tests to strengthen the results of this study.

Research limitations/implications

This study offers new ideas in the investment literature and its practice in companies, where it highlights the role of the existence of an insider CEO in practice on investment efficiency. The authors provide recommendations to companies, potential investors and policymakers regarding the potential for insider CEOs to influence investment returns that tend to be less efficient. Therefore, this study proves that the presence of an insider CEO has a higher risk-taking preference, which has the potential to influence less efficient investment practices.

Originality/value

Several previous studies have focused more on the role of CEOs who come from outside the company and their impact on investment practices. However, it is not clear whether insider CEOs will influence the company’s investment efficiency practices driven by the perspective of “risk preferences and investment returns”. To the best of the authors’ knowledge, this is the first study to substantiate the role of CEOs based on their origin and their impact on less efficient investment practices.

Keywords

Acknowledgements

The authors have no conflict of interest for doing this research project. In addiiton, the availability of this data can be process by requested from the authors.

Funding: This research project has fully-funded from Faculty of Economics and Business, Universitas Airlangga under Mandatory Research Grant (Hibah Riset Mandat) 2023.

The authors have no conflict of interest for doing this research project. In addiiton, the availability of this data can be process by requested from the authors.

Funding: This research project has fully-funded from Faculty of Economics and Business, Universitas Airlangga under Mandatory Research Grant (Hibah Riset Mandat) 2023.

Citation

Nasih, M., Anridho, N., Harymawan, I., Cahyono, S. and Wasiuzzaman, S. (2025), "Too good or not by hiring insider CEO: an analysis preference of investment efficiency from Indonesia", Corporate Governance, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/CG-12-2023-0525

Publisher

:

Emerald Publishing Limited

Copyright © 2024, Emerald Publishing Limited

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