Better Together? CEO Identity and Firm Productivity

Abstract

This paper analyzes the relationship between CEO quality and firm productivity in the private sector using top-manager/CEO job transitions. Using a matched employer-employee data set, I attempt to disentangle the role of the CEO type (identity) from that of the firm in revenue productivity and evaluate the existence and relevance of match complementarities between CEO and firm types. I present a proxy measure of CEO quality that takes advantage of differential patterns of CEO mobility throughout their careers to circumvent endogenous CEO job mobility. I find that a one-standard-deviation increase in CEO quality results in a 5% increase in firm production. Higher quality CEOs are more likely to hold a higher education degree, have a larger experience as a manager, invest in innovation, and less likely to work in a family firm. More strikingly, results indicate that CEO-firm complementarities represent about half of the CEO’s impact on firm revenue productivity. The issue of CEO impact is of significant practical importance to firms and policymakers alike, as it can partly explain the rise in wage inequality.

Keywords: Top-manager, Firm Productivity, CEO-Firm Match, Endogenous Mobility

JEL Classification: C14, J24, L22, M12