A Family Member or Professional Management? The Choice of a CEO and its Impact on Performance
46 Pages Posted: 26 Feb 2007
Date Written: December 2006
Abstract
In this study, we explore what kinds of firms are more likely to have a family CEO or professional CEO, and investigate the performance of CEOs from different backgrounds. The results show that firms with low requirements in managerial skills and a high potential for expropriation are more likely to choose a CEO from the largest shareholder's family (nepotism). As for the relationship between CEO background and firm performance, it depends on firm operating characteristics and control environment. When a firm requires high managerial skill, firm performance will be improved if the CEO is a professional manager and the largest shareholder has low cash-flow rights and weaker control. When there is large opportunity for expropriation in a firm, a firm's performance will be better if the CEO is a family member and the largest shareholder has highly persuasive cash-flow rights.
Keywords: Family CEOs, professional CEOs, firm characteristics, the largest shareholder, performance
JEL Classification: G34
Suggested Citation: Suggested Citation
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