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Do CEOs matter?

Author

Listed:
  • Bennedsen, Morten
  • Perez-Gonzalez, Francisco
  • Wolfenzon, Daniel

Abstract

Estimating the value of top managerial talent is a central topic of research that has attracted widespread attention from academics and practitioners. Yet, studying the impact of managers on firm performance is difficult because of endogeneity and omitted variables concerns. In this paper, we test for the impact of managers on firm performance in two ways. First, we examine whether top executive deaths have an impact on firm performance, focusing on the manager and firm characteristics that are associated to large manager-death effects. Second, we test for the interaction between the personal and professional activities of managers by examining the effect of deaths of immediate family members (spouses, parents, children, etc) on firm performance. Our main findings are three. First, CEO deaths are strongly correlated with declines in firms operating profitability, asset growth and sales growth. Second, the death of board members does not seem to affect firm prospects, indicating that not all senior managers are equally important for firms' outcomes. Third, CEOs' immediate family deaths are significantly negatively correlated to firm performance. This last result suggests a strong link between the personal and business roles that top management plays, a connection that is present even in large firms. Overall, our findings demonstrate CEOs are extremely important for firms' prospects.

Suggested Citation

  • Bennedsen, Morten & Perez-Gonzalez, Francisco & Wolfenzon, Daniel, 2007. "Do CEOs matter?," CEI Working Paper Series 2006-21, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
    • Handle: RePEc:hit:hitcei:2006-21
    Note: First draft: October 15, 2006
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    File URL: https://hermes-ir.lib.hit-u.ac.jp/hermes/ir/re/13479/wp2006-21a.pdf
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    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Prix du livre d'économie du Sénat : Laurent Mauduit, petits conseils
      by Alexandre Delaigue in Econoclaste on 2007-11-11 20:20:55
    2. What do bosses do?
      by chris dillow in Stumbling and Mumbling on 2007-08-30 15:25:57

    Citations

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    Cited by:

    1. João Amador & Sharmin Sazedj & José Tavares, 2018. "CEO Performance in Severe Crises: The Role of Newcomers," Working Papers w201821, Banco de Portugal, Economics and Research Department.
    2. Lustig, Hanno & Syverson, Chad & Van Nieuwerburgh, Stijn, 2011. "Technological change and the growing inequality in managerial compensation," Journal of Financial Economics, Elsevier, vol. 99(3), pages 601-627, March.
    3. Goodall, Amanda H., 2009. "Highly cited leaders and the performance of research universities," Research Policy, Elsevier, vol. 38(7), pages 1079-1092, September.
    4. Edward P. Lazear & Kathryn L. Shaw & Christopher T. Stanton, 2015. "The Value of Bosses," Journal of Labor Economics, University of Chicago Press, vol. 33(4), pages 823-861.
    5. von Lilienfeld-Toal, Ulf & Ruenzi, Stefan, 2006. "Why managers hold shares of their firm: An empirical analysis," CFR Working Papers 06-11, University of Cologne, Centre for Financial Research (CFR).
    6. repec:hum:wpaper:sfb649dp2007-055 is not listed on IDEAS
    7. Anders Frederiksen & Lisa B. Kahn & Fabian Lange, 2020. "Supervisors and Performance Management Systems," Journal of Political Economy, University of Chicago Press, vol. 128(6), pages 2123-2187.
    8. Alex Edmans & Xavier Gabaix & Augustin Landier, 2007. "A Calibratable Model of Optimal CEO Incentives in Market Equilibrium," NBER Working Papers 13372, National Bureau of Economic Research, Inc.
    9. Gürerk, Özgür & Irlenbusch, Bernd & Rockenbach, Bettina, 2009. "Motivating teammates: The leader's choice between positive and negative incentives," Journal of Economic Psychology, Elsevier, vol. 30(4), pages 591-607, August.
    10. Nguyen, Bang Dang & Nielsen, Kasper Meisner, 2010. "The value of independent directors: Evidence from sudden deaths," Journal of Financial Economics, Elsevier, vol. 98(3), pages 550-567, December.
    11. Matthew Smith & Danny Yagan & Owen Zidar & Eric Zwick, 2019. "Capitalists in the Twenty-First Century," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 134(4), pages 1675-1745.
    12. Hideo Owan & Shingo Takahashi & Tsuyoshi Tsuru & Katsuhito Uehara, 2014. "Finding good managers: an econometric case study of a large Japanese auto dealership," Working Papers EMS_2014_08, Research Institute, International University of Japan.
    13. Naz, Iram & Shah, Syed Muhammad Amir & Kutan, Ali M., 2017. "Do managers of sharia-compliant firms have distinctive financial styles?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 46(C), pages 174-187.
    14. Steven N. Kaplan & Mark M. Klebanov & Morten Sorensen, 2008. "Which CEO Characteristics and Abilities Matter?," NBER Working Papers 14195, National Bureau of Economic Research, Inc.
    15. Bernile, Gennaro & Jarrell, Gregg A., 2009. "The impact of the options backdating scandal on shareholders," Journal of Accounting and Economics, Elsevier, vol. 47(1-2), pages 2-26, March.
    16. Cesare Fracassi, 2017. "Corporate Finance Policies and Social Networks," Management Science, INFORMS, vol. 63(8), pages 2420-2438, August.
    17. Lazear, Edward P. & Shaw, Kathryn L., 2014. "The value of bosses," LSE Research Online Documents on Economics 60611, London School of Economics and Political Science, LSE Library.

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