CEO Education, CEO Turnover, and Firm Performance

48 Pages Posted: 2 Sep 2010 Last revised: 9 Nov 2010

See all articles by Sanjai Bhagat

Sanjai Bhagat

University of Colorado at Boulder - Department of Finance

Brian J. Bolton

University of Louisiana at Lafayette

Ajay Subramanian

Georgia State University

Date Written: August 3, 2010

Abstract

This paper analyzes the relationship between CEO education, CEO turnover and firm performance. Our primary interest is on the role that CEO education plays in a firm's decision to replace its current CEO, the role that it plays in selecting a new CEO, and on whether CEO education significantly affects performance. We use six main measures of CEO education: whether or not the CEO attended a Top-20 undergraduate school, whether or not the CEO has an MBA, law or masters‟ degree, and whether or not the MBA or law degree is from a Top-20 program. Our study includes more than 14,500 CEO-years and more than 2,600 cases of CEO turnover from 1993-2007.

Our results show that CEO education does not play a large role in the decision by a firm to replace its current CEO; poorly performing CEOs are replaced, regardless of their education. Education, however, does play a significant role in the selection of the replacement CEO; there is a significantly positive correlation between the education levels of new CEOs and those of the CEOs they replace. Further, hiring new CEOs with MBA degrees leads to short-term improvements in operating performance. We, however, do not find a significant systematic relationship between CEO education and long-term firm performance. CEO education does not seem to be an appropriate proxy for CEO ability. Our results lead to the puzzling implication that, while CEO education appears to play an important role in the hiring of CEOs, it does not affect the long-term performance of firms.

Keywords: Manager Ability, CEO Turnover, CEO Education, Firm Performance, Corporate Governance

JEL Classification: G34, J23, J63, M12

Suggested Citation

Bhagat, Sanjai and Bolton, Brian J. and Subramanian, Ajay, CEO Education, CEO Turnover, and Firm Performance (August 3, 2010). Available at SSRN: https://ssrn.com/abstract=1670219 or http://dx.doi.org/10.2139/ssrn.1670219

Sanjai Bhagat

University of Colorado at Boulder - Department of Finance ( email )

Campus Box 419
Boulder, CO 80309
United States
303-492-7821 (Phone)

Brian J. Bolton (Contact Author)

University of Louisiana at Lafayette ( email )

Lafayette, LA 70504
United States

Ajay Subramanian

Georgia State University ( email )

Depts. of Finance & Risk Management and Insurance
P.O. Box 4050
Atlanta, GA 30303
United States
404-413-7483 (Phone)

HOME PAGE: http://robinson.gsu.edu/profile/ajay-subramanian/

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