Co-CEO Structure and Investment Efficiency

[Purpose] This paper examines the effect of Co-CEO structure on investment efficiency, addressing conflicting views in existing studies. It categorizes the Co-CEO structure into three types-those with controlling shareholders and their relatives, professional managers, or a mix-and analyzes how these compositions influence investment efficiency. [Methodology] This paper performs a regression analysis without an intercept, using the absolute value of abnormal investment amounts calculated with the investment efficiency model by McNichols and Stubben (2008) as the dependent variable, and a dummy variable representing different managerial compositions as the explanatory variable. [Findings] This paper finds that firms with Co-CEO generally exhibit lower investment efficiency than those with a single manager, with the lowest efficiency observed in firms where all Co-CEOs are controlling shareholders and their relatives. However, this pattern is absent in firms belonging to cross-shareholding-restricted groups. In firms outside these groups, Co-CEO structures, especially those dominated by controlling shareholders and their relatives, show significantly lower investment efficiency. [Implications] This study shows that investment efficiency declines when powerful managers, like controlling shareholders, are part of multiple executives. It highlights the need for decision-making tailored to a firm’s circumstances, such as cross-shareholding restrictions or crises like COVID-19. Effective checks, balances among executives, and robust monitoring by group headquarters and boards are essential for a Co-CEO structure to succeed.