Exploring the Link Between CEO Integrity and Investment Efficiency: New Evidence from Emerging South Africa

This study detects an un-investigated ethical attribute of CEOs linked to investment efficiency - integrity. This study conjectures, drawing on the expectancy violation and self-regulation theories, that CEOs with high levels of integrity tend to understand the severity of stakeholders' punishment for managerial misconduct and, therefore, self-regulate to avoid self-serving motives and align managerial and stakeholders' interests leading to high investment efficiency. Using a sample of South African firms from 2015 to 2020, this study finds that CEO integrity significantly matters for investment efficiency and in reducing suboptimal investment strategies. The positive CEO integrity-investment efficiency nexus is pronounced in the presence of high corporate transparency, conservative managerial spending, low agency conflicts, and high board governance. The findings of this study remain valid to alternative measures, CEO characteristics, and endogeneity concerns. Taken together, this study extends the literature through empirical evidence that CEOs' ethical and moral traits can reinforce investment efficiency.