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Founder-CEOs, Investment Decisions, and Stock Market Performance

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  • Fahlenbrach, Rudiger

    (Ohio State U)

Abstract

Eleven percent of the largest public U.S. firms are headed by the CEO who founded the firm. Founder-CEO firms differ systematically from successor-CEO firms. Founder-CEO firms invest more in R&D, have higher capital expenditures, and make more focused mergers and acquisitions. They have a higher firm valuation. More-over, an equal-weighted investment strategy that had invested in founder-CEO firms from 1993{2002 would have earned a benchmark-adjusted return of 8.3% annually. A value-weighted investment strategy would have earned an abnormal return of 10.7%. The excess return is robust; after controlling for a wide variety of firm characteristics, CEO characteristics, and industry affiliation, the abnormal return is still 4.4% annually.

Suggested Citation

  • Fahlenbrach, Rudiger, 2006. "Founder-CEOs, Investment Decisions, and Stock Market Performance," Working Paper Series 2004-20, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    • Handle: RePEc:ecl:ohidic:2004-20
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    References listed on IDEAS

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    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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