A Bullshit Job? A Global Study on the Value of CEOs

Abstract

This paper presents strong evidence that existing studies overestimate the impact of CEOs on the performance of the firms they lead. Ours is a comprehensive study of more than 3,692 CEOs in 2,103 firms in 22 countries, and for the period 1991-2019. Our objective is to assess the direct impact of CEOs on firm results--measured as Total Shareholder Return and ROIC--after controlling for global, country, industry, and firm effects. Like the previous literature, we find that a CEO dummy explains 2 percent of the variability of stock returns, and 12 percent of the variability in firms' return on invested capital. However, we show that such relationship is driven by CEOs having an average impact that is economically unimportant, with some CEOs positively affecting performance, and some others destroying value. In fact, analyzing results for the best and worst performing firms, we find that CEOs only improve value in good companies, but destroy value in underperforming firms. Additionally, there is no firm or CEO characteristic (except for CEO tenure) that systematically explains their impact on performance: characteristics such as gender, age, and compensation do not make a difference. This suggest that firms hire top executives for reasons different from their inherent ability to contribute to performance, so CEOs end up doing well only if their firms do well, but not vice versa.

Keywords: corporate governance, firm value, leadership

JEL Classification: F3, F4, G3, M1