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)
University of Illinois at Urbana-Champaign; National Bureau of Economic Research (NBER)
London School of Economics & Political Science (LSE) - Department of Finance; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)
Journal of Empirical Finance, Forthcoming
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
Date posted: November 19, 2003 ; Last revised: July 23, 2012
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