'Til Death Do Us Part: The Relative Merits of Founder CEOs

40 Pages Posted: 17 Jan 2019

See all articles by Tristan Fitzgerald

Tristan Fitzgerald

Texas A&M University - Department of Finance

Date Written: November 19, 2018


This paper addresses a question faced by every firm in the economy, namely is it optimal for a firm’s founder to lead the company as CEO? To identify the treatment effect of founder CEOs on corporate policy and firm value, I exploit a natural experiment involving exogenous founder-to-professional CEO turnovers that arise from a founder’s death or illness. I find that, relative to comparable firms that retain their founder CEO, firms that must switch to a professional CEO experience a 10% reduction in their internally generated innovation. However, professional CEOs counteract this reduced internal R&D productivity by acquiring external technologies through greater M&A activity, increasing firm leverage and nurturing larger, more stable top management teams. These combined policy changes have offsetting firm value implications, implying a “horses for courses” approach to choosing between a founder CEO and a professional CEO.

Keywords: founder CEOs; innovation; R&D; mergers & acquisitions; corporate governance

JEL Classification: G34, G32, O32, O31

Suggested Citation

Fitzgerald, Tristan, 'Til Death Do Us Part: The Relative Merits of Founder CEOs (November 19, 2018). Available at SSRN: https://ssrn.com/abstract=3311899 or http://dx.doi.org/10.2139/ssrn.3311899

Tristan Fitzgerald (Contact Author)

Texas A&M University - Department of Finance ( email )

430 Wehner
College Station, TX 77843-4218
United States

HOME PAGE: http://https://sites.google.com/site/tristanjfitzgerald/

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