Understanding the Relationship between Founder-CEOs and Firm Performance

37 Pages Posted: 19 Nov 2003 Last revised: 23 Jul 2012

See all articles by Renee B. Adams

Renee B. Adams

University of Oxford; ABFER

Heitor Almeida

University of Illinois at Urbana-Champaign; National Bureau of Economic Research (NBER)

Daniel Ferreira

London School of Economics - Department of Finance; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

Date Written: February 2008

Abstract

We use instrumental variables methods to disentangle the effect of founder-CEOs on performance from the effect of performance on founder-CEO status. Our instruments for founder-CEO status are the proportion of the firm's founders that are dead and the number of people who founded the company. We find strong evidence that founder-CEO status is endogenous in performance regressions and that good performance makes it less likely that the founder retains the CEO title. After factoring out the effect of performance on founder-CEO status, we identify a positive causal effect of founder-CEOs on firm performance that is quantitatively larger than the effect estimated through standard OLS regressions. We also find that founder-CEOs are more likely to relinquish the CEO post after periods of either unusually low or unusually high operational performances. All in all, the results in this paper are consistent with a largely positive view of founder control in large US corporations.

Keywords: founders, family firms, founder-CEO succession

JEL Classification: G32, G34

Suggested Citation

Adams, Renée B. and Almeida, Heitor and Ferreira, Daniel, Understanding the Relationship between Founder-CEOs and Firm Performance (February 2008). Journal of Empirical Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=470145 or http://dx.doi.org/10.2139/ssrn.470145

Renée B. Adams

University of Oxford ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

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Heitor Almeida (Contact Author)

University of Illinois at Urbana-Champaign ( email )

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HOME PAGE: http://www.business.illinois.edu/FacultyProfile/faculty_profile.aspx?ID=11357

National Bureau of Economic Research (NBER)

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Daniel Ferreira

London School of Economics - Department of Finance ( email )

Houghton Street
London, WC2A 2AE
United Kingdom
(+44) 20 7955 7544 (Phone)

HOME PAGE: http://personal.lse.ac.uk/FERREIRD/

European Corporate Governance Institute (ECGI)

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1000 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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