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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/27266
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| Title: | Understanding the Relationship between Founder-CEOs and Firm Performance |
| Authors: | Adams, Renée B.
Almeida, Heitor
Ferreira, Daniel |
| Issue Date: | 8-Nov-2003 |
| Series/Report no.: | FIN-03-036 |
| Abstract: | While previous empirical literature has examined the effect of
founder-CEOs on firm perfor- mance, it has largely ignored the effect of
firm performance on founder-CEO status. In this paper, we use
instrumental variables methods to better understand the relationship
between founder-CEOs and performance. Using the proportion of the
firm’s founders that are dead and the number of people who founded
the company as instruments for founder-CEO status, we Þnd strong
evidence that founder-CEO status is endogenous in performance
regressions. This implies that the direct effect of founder-CEOs on firm
performance cannot be esti- mated correctly without accounting for the
endogeneity of founder-CEO status. Perhaps surprisingly, we Þnd
that performance is negatively related to the likelihood that founders
retain the CEO title. This result appears to be driven primarily by
founder departures after periods of good performance, rather than by an
entrenchment effect that allows founders to remain as CEOs following
poor performance. After factoring out the effect of performance on
founder-CEO status, we find a residual positive correlation between
founder-CEO status and firm performance. This finding suggests that
there is a positive causal link from founder-CEOs to firm performance. |
| URI: | http://hdl.handle.net/2451/27266 |
| Appears in Collections: | Finance Working Papers
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