How does CEO career variety affect a firms investment efficiency?

Abstract

While prior studies have extensively examined CEO career variety in developed economies, its implications for investment efficiency in emerging markets remain limited. This study examines the relationship between CEO career variety and investment efficiency in non-financial firms listed on the Indonesia Stock Exchange during the 2018–2021 period, with a particular focus on firms exhibiting over- and underinvestment. Using 941 firm-year observations and established measures of CEO career variety, the analysis applies Coarsened Exact Matching and Heckman’s two-stage regression to address potential endogeneity concerns. The findings indicate that greater CEO career variety is associated with lower overall investment efficiency. Further analyses reveal an asymmetric effect: CEOs with more diverse career backgrounds tend to mitigate overinvestment while intensifying underinvestment, suggesting that career variety shapes managerial risk preferences and resource allocation differently across investment contexts. These findings extend upper echelons theory by demonstrating the context-dependent value of executive career diversity. In emerging market environments characterized by institutional uncertainty and limited transparency, broad career experiences may weaken firm-specific knowledge and stakeholder embeddedness, thereby constraining effective investment decision-making.