Importance of Managers for Corporate Policies: Evidence of Managerial Fixed Effects in Brazil

Abstract

Most Economics and Finance research relegates the possible influence of managers' personal characteristics or "style" over the main corporate policies and firm performance to a secondary level, preferably investigating market, industry or firm characteristics. However, a growing theoretical and empirical literature shows that managers' idiosyncrasies, differences of opinion and "vision" of the business can substantially affect corporate performance and decisions. This study presents the first evidence in the Brazilian market of the so-called "managerial fixed effects", using a sample of publicly traded companies with data between 1998 and 2003. Specifically, we found evidence that manager changes (Chief Executive Officer or Chairman of the Board) during this period are associated with significant variations in capital structure measures and Tobin's q of the sample components, even after isolating time and firm unobserved heterogeneity and a wide range of their observable attributes. In addition, this study proposes improved strategies for the empirical identification of managerial effects in comparison with earlier methods.

Keywords: Managerial Fixed Effects, Corporate Performance, Behavioral Finance, Corporate Decisions and Policies

JEL Classification: G30, G31, G32