37 Pages Posted: 19 Nov 2003 Last revised: 23 Jul 2012
Date Written: February 2008
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: Suggested Citation
Adams, Renee 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