Do CEOs Matter? Corporate Performance and the CEO Life Cycle

Event Date: 25 May 2016

Speaker: Peter Limbach, Karlsruhe Institute of Technology

Time: 2pm

Venue: Strathclyde Business School, Stenhouse Wing, SW107

Abstract:

This study suggests that the effect of CEOs on the firms they run varies over time. We document an inverted U-shaped relation between CEO tenure and firm value as well as M&A announcement returns, consistent with the posited net effect of benefits (e.g., learning, relations) and costs (e.g., aversion to change, entrenchment) arising dynamically over the CEO’s time in office. We find economically meaningful variation in the point in time at which costs of tenure start to outweigh benefits depending on a firm’s economic environment that affects costs and benefits of tenure. Nonparametric estimations, exogenous shocks to the cost-benefit relation of tenure, and an analysis of CEO sudden deaths further support our findings. 

Published: 26 May 2016