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Understanding the Relationship between Founder-CEOs and Firm Performance


Renee B. Adams


University of New South Wales; Financial Research Network (FIRN); European Corporate Governance Institute (ECGI)

Heitor Almeida


University of Illinois at Urbana-Champaign; National Bureau of Economic Research (NBER)

Daniel Ferreira


London School of Economics & Political Science (LSE) - Department of Finance; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)
February 2008

Journal of Empirical Finance, Forthcoming

Abstract:     
We use instrumental variables methods to disentangle the effect of founder-CEOs on performance from the effect of performance on founder-CEO status. Our instruments for founder-CEO status are the proportion of the firm's founders that are dead and the number of people who founded the company. We find strong evidence that founder-CEO status is endogenous in performance regressions and that good performance makes it less likely that the founder retains the CEO title. After factoring out the effect of performance on founder-CEO status, we identify a positive causal effect of founder-CEOs on firm performance that is quantitatively larger than the effect estimated through standard OLS regressions. We also find that founder-CEOs are more likely to relinquish the CEO post after periods of either unusually low or unusually high operational performances. All in all, the results in this paper are consistent with a largely positive view of founder control in large US corporations.

Number of Pages in PDF File: 37

Keywords: founders, family firms, founder-CEO succession

JEL Classification: G32, G34

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Date posted: November 19, 2003 ; Last revised: July 23, 2012

Suggested Citation

Adams, Renee B., Almeida, Heitor and Ferreira, Daniel, Understanding the Relationship between Founder-CEOs and Firm Performance (February 2008). Journal of Empirical Finance, Forthcoming. Available at SSRN: http://ssrn.com/abstract=470145 or http://dx.doi.org/10.2139/ssrn.470145

Contact Information

Renée B. Adams
University of New South Wales ( email )
Sydney, NSW 2052
Australia
+61(2)93854280 (Phone)

Financial Research Network (FIRN)
C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia
HOME PAGE: http://www.firn.org.au

European Corporate Governance Institute (ECGI)
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
HOME PAGE: http://www.ecgi.org
Heitor Almeida (Contact Author)
University of Illinois at Urbana-Champaign ( email )
515 East Gregory Drive
4037 BIF
Champaign, IL 61820
United States
217-3332704 (Phone)
HOME PAGE: http://www.business.illinois.edu/FacultyProfile/faculty_profile.aspx?ID=11357
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Daniel Ferreira
London School of Economics & Political Science (LSE) - Department of Finance ( email )
Houghton Street
London, WC2A 2AE
United Kingdom
(+44) 20 7955 7544 (Phone)
HOME PAGE: http://personal.lse.ac.uk/FERREIRD/
European Corporate Governance Institute (ECGI)
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
HOME PAGE: http://www.ecgi.org
Centre for Economic Policy Research (CEPR) ( email )
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Feedback to SSRN (Beta)


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