Do Ceos Matter?

35 Pages Posted: 3 Nov 2008  

Morten Bennedsen

INSEAD - Economics and Political Sciences

Francisco Perez-Gonzalez

National Bureau of Economic Research (NBER); Instituto Tecnológico Autónomo de México (ITAM)

Daniel Wolfenzon

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Date Written: October 2006

Abstract

Estimating the value of top managerial talent is a central topic of research that hasattracted widespread attention from academics and practitioners. Yet, studying the impact of managers on firm performance is difficult because of endogeneity and omitted variablesconcerns. We test for the impact of managers on firm performance in two ways. First, weexamine whether top management (chief executive officers and board members) deaths have an impact on firm performance, focusing on the manager and firm characteristics that are associated to large manager-death effects. To our knowledge, this is the first test that assesses the consequences of managerial deaths on firm operating performance, investment rates and salesgrowth. Second, to bolster the interpretation that these effects are driven by managers, we test whether the death of top management immediate family members (spouse, parents, children,etc) affect firm prospects. These events provide us with exogenous variation in the attention managers pay to their business and thus allow us to measure the impact of managerial contribution to firm prospects. Our main findings are three. First, CEO deaths are strongly correlated with declines in firm operating profitability, asset growth and sales growth. Second,the death of board members does not seem to affect firm prospects, indicating that not all seniormanagers are equally important for firms outcomes. Third, CEOs immediate family deaths are significantly negatively correlated to firm performance. This last result establishes a strong link between the personal and business roles that top management play. Overall, our findingsdemonstrate CEOs are extremely important for firms prospects.

Suggested Citation

Bennedsen, Morten and Perez-Gonzalez, Francisco and Wolfenzon, Daniel, Do Ceos Matter? (October 2006). NYU Working Paper No. FIN-06-032. Available at SSRN: https://ssrn.com/abstract=1293659

Morten Bennedsen (Contact Author)

INSEAD - Economics and Political Sciences ( email )

Boulevard de Constance
F-77305 Fontainebleau Cedex
France

Francisco Perez-Gonzalez

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Instituto Tecnológico Autónomo de México (ITAM) ( email )

Av. Camino a Sta. Teresa 930
Col. Héroes de Padierna
Mexico City, D.F. 01000, Federal District 01080
Mexico

Daniel Wolfenzon

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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