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Financial experts on the top management team: Do they reduce investment inefficiency?

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<mark>Journal publication date</mark>7/02/2023
<mark>Journal</mark>Journal of Business Finance and Accounting
Issue number1-2
Number of pages38
Pages (from-to)198-235
Publication StatusPublished
Early online date8/12/21
<mark>Original language</mark>English


We examine the effect of the top management team (TMT) professional finance experience on firm investment efficiency. Top managers with a career background in finance help reduce deviations of investment from the level warranted by firm fundamentals. Reductions in investment inefficiencies are achieved by financial expert managers using project-specific rather than company-wide, discount rates for project evaluation and facilitating debt and equity issuance at lower costs. Greater investment efficiency due to the financial expertise of TMT improves firm performance. We demonstrate that these improvements are driven by the collective expertise of the TMT rather than solely by chief executive officers.