Do CEOs Matter? Corporate Performance and the CEO Life Cycle

65 Pages Posted: 3 Jul 2015 Last revised: 30 Nov 2016

Peter Limbach

University of Cologne and Centre for Financial Research (CFR)

Markus M. Schmid

University of St. Gallen - Swiss Institute of Banking and Finance; University of St. Gallen - School of Finance

Meik Scholz-Daneshgari

Karlsruhe Institute of Technology

Date Written: November 30, 2016

Abstract

We examine how CEOs’ impact on firm value varies over time. We document a hump-shaped relation between CEO tenure and firm value which is subject to meaningful variation depending on industry dynamics, the business cycle, and CEOs’ adaptability to changes. Semi-parametric estimations, stock returns to sudden deaths and to takeover announcements, as well as tests for extrapolation, survivorship, and endogenous CEO-firm matching and turnover confirm our results. They suggest that a considerable fraction of high-tenure CEOs is no longer the optimal match for their firms which seem to have difficulties, due to governance rather than labor market frictions, replacing incumbent CEOs.

Keywords: CEO adaptability, (within-)CEO heterogeneity, CEO tenure, CEO term limits, environmental dynamics, firm value, investments

JEL Classification: G30, G34, J24

Suggested Citation

Limbach, Peter and Schmid, Markus M. and Scholz-Daneshgari, Meik, Do CEOs Matter? Corporate Performance and the CEO Life Cycle (November 30, 2016). Paris December 2015 Finance Meeting EUROFIDAI - AFFI; University of St.Gallen, School of Finance Research Paper No. 2015/11. Available at SSRN: https://ssrn.com/abstract=2626340 or http://dx.doi.org/10.2139/ssrn.2626340

Peter Limbach (Contact Author)

University of Cologne and Centre for Financial Research (CFR) ( email )

Albertus-Magnus-Platz
Köln, 50923
Germany

HOME PAGE: http://www.finance.uni-koeln.de

Markus M. Schmid

University of St. Gallen - Swiss Institute of Banking and Finance ( email )

Rosenbergstrasse 52
St. Gallen, 9000
Switzerland

University of St. Gallen - School of Finance ( email )

Rosenbergstrasse 52
St.Gallen, CH-9000
Switzerland

Meik Scholz-Daneshgari

Karlsruhe Institute of Technology ( email )

Kaiserstraße 12
Karlsruhe, Baden Württemberg 76128
Germany

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