Do CEOs Matter? Corporate Performance and the CEO Life Cycle

Peter Limbach (), Markus Schmid and Meik Scholz ()

No 1511, Working Papers on Finance from University of St. Gallen, School of Finance

Abstract: This study suggests that the effect of CEOs on the firms they run varies over time. We document an inverted U-shaped relation between CEO tenure and firm value as well as M&A announcement returns, consistent with the posited net effect of benefits (e.g., learning, relations) and costs (e.g., aversion to change, entrenchment) arising dynamically over the CEO’s time in office. We find economically meaningful variation in the point in time at which costs of tenure start to outweigh benefits depending on a firm’s economic environment that affects costs and benefits of tenure. Nonparametric estimations, exogenous shocks to the cost-benefit relation of tenure, and an analysis of CEO sudden deaths further support our findings.

Keywords: (within-)CEO heterogeneity; CEO tenure; CEO term limits; economic environment; firm value; mergers and acquisitions (search for similar items in EconPapers)
JEL-codes: G30 G34 J24 (search for similar items in EconPapers)
Pages: 63 pages
Date: 2015-07, Revised 2016-04
New Economics Papers: this item is included in nep-bec, nep-cfn and nep-lma
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:usg:sfwpfi:2015:11

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