Looking in the Rear View Mirror: The Effect of Managers’ Professional Experience on Corporate Financial Policy

Abstract

We track the employment history of over 9,000 managers to study the effects of professional experiences on corporate policies. Our identification strategy exploits exogenous CEO turnovers and employment in other firms, in non-CEO roles and early in their career. Firms run by CEOs who experienced distress issue less debt, save more cash, and invest less than other firms. Past experience affects both managerial appointments and corporate policies, with stronger effects in poorly governed firms. We find similar effects on debt and cash, but not investment, for CFOs. The results suggest that policies vary with managers’ experiences and throughout their careers.