Disentangling the CEO Career Horizon Problem: The Moderating Role of Post-Retirement Involvement Intentions

Abstract

This study revisits the classic "CEO career horizon problem", which posits that late-career CEOs prioritize short-term gains and avoid risk. Two distinct mechanisms underlie this problem: an agency-based aversion to long-horizon investments and a prospect-theoretic aversion to risk. We disentangle these mechanisms by examining separately how a CEO's time to retirement affects family firms' investment time horizons and entrepreneurial risk-taking. Using a multi-year sample of late-career CEOs, we find that family firms tend to increase long-term investments and risk-taking as CEOs approach retirement. Crucially, we introduce CEOs' post-retirement involvement intentions as a boundary condition: family firms led by CEOs planning to remain more involved after stepping down show a stronger shift toward long-term investments when approaching retirement, whereas no significant moderation emerges for risk-taking. These findings clarify the independent roles of agency and prospect theory mechanisms, and the absence thereof in family firms, in CEO decision-making when approaching retirement.