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Managers Who Lack Style: Evidence from Exogenous CEO Changes

54 Pages Posted: 9 Apr 2011  

C. Edward Fee

Tulane University - A.B. Freeman School of Business

Charles J. Hadlock

Michigan State University - The Eli Broad College of Business and The Eli Broad Graduate School of Management

Joshua R. Pierce

University of Alabama Culverhouse College of Commerce

Date Written: March 2, 2011

Abstract

We study managerial style effects in investment decisions, financing policies, and firm profitability by examining exogenous CEO changes arising from deaths, health issues, and natural retirements. In a comprehensive panel of 8,615 Compustat firms from 1990 to 2007, we find that policy changes and profitability changes subsequent to exogenous turnover do not display abnormally high levels of variability. This evidence casts serious doubt on the hypothesis that managerial style effects play a causal role in firms' investment and financing decisions. We do detect abnormally high levels of variation in policies and profitability after endogenous leadership changes arising from forced CEO turnover. While this is unlikely to reflect a causal relation, it does suggest that underperforming firms tend to simultaneously change both managers and policies. In contrast to prior work, we find no convincing evidence that managers who serve at multiple firms tend to adopt a common style across employers. We also offer some methodological points on testing for the presence of managerial style effects in corporate decisions.

Keywords: Managerial style, CEO turnover, investment decisions, financing policies, manager-specific effects

JEL Classification: G30, G31, G32

Suggested Citation

Fee, C. Edward and Hadlock, Charles J. and Pierce, Joshua R., Managers Who Lack Style: Evidence from Exogenous CEO Changes (March 2, 2011). Available at SSRN: https://ssrn.com/abstract=1805028 or http://dx.doi.org/10.2139/ssrn.1805028

C. Edward Fee (Contact Author)

Tulane University - A.B. Freeman School of Business ( email )

7 McAlister Drive
New Orleans, LA 70118
United States

Charles J. Hadlock

Michigan State University - The Eli Broad College of Business and The Eli Broad Graduate School of Management ( email )

315 Eppley Center
East Lansing, MI 48824-1121
United States
517-353-9330 (Phone)
517-432-1080 (Fax)

Joshua R. Pierce

University of Alabama Culverhouse College of Commerce ( email )

101 Paul W. Bryant Dr.
Box 870382
Tuscaloosa, AL 35487
United States

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