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Which CEO Characteristics and Abilities Matter?

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  • Steven N. Kaplan
  • Mark M. Klebanov
  • Morten Sorensen

Abstract

We study the characteristics and abilities of CEO candidates for companies involved in buyout (LBO) and venture capital (VC) transactions and relate them to hiring decisions, investment decisions, and company performance. Candidates are assessed on more than thirty individual abilities. The abilities are highly correlated; a factor analysis suggests there are two primary factors with intuitive characterizations -- one for general ability and one that contrasts team-related, interpersonal skills with execution skills. Both LBO and VC firms are more likely to hire and invest in CEOs with greater general abilities, both execution- and team-related. Success, however, is more strongly related to execution skills than to team-related skills. Success is, at best, only marginally related to incumbency, holding observable talent and ability constant.

Suggested Citation

  • Steven N. Kaplan & Mark M. Klebanov & Morten Sorensen, 2008. "Which CEO Characteristics and Abilities Matter?," NBER Working Papers 14195, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:14195
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    Cited by:

    1. Gallego, Francisco & Larrain, Borja, 2012. "CEO compensation and large shareholders: Evidence from emerging markets," Journal of Comparative Economics, Elsevier, vol. 40(4), pages 621-642.
    2. Francisco Gallego & Borja Larraín, 2010. "CEO Compensation among Firms Controlled by Large Shareholders: Evidence from Emerging Markets," Documentos de Trabajo 379, Instituto de Economia. Pontificia Universidad Católica de Chile..
    3. Eisfeldt, Andrea L. & Kuhnen, Camelia M., 2013. "CEO turnover in a competitive assignment framework," Journal of Financial Economics, Elsevier, vol. 109(2), pages 351-372.
    4. Goodall, Amanda H. & Kahn, Lawrence M. & Oswald, Andrew J., 2011. "Why do leaders matter? A study of expert knowledge in a superstar setting," Journal of Economic Behavior & Organization, Elsevier, vol. 77(3), pages 265-284, March.
    5. Prachi Mishra & Ariell Reshef, 2019. "How Do Central Bank Governors Matter? Regulation and the Financial Sector," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 51(2-3), pages 369-402, March.
    6. Berndt, Ernst R. & Gibbons, Robert S. & Kolotilin, Anton & Taub, Anna Levine, 2015. "The heterogeneity of concentrated prescribing behavior: Theory and evidence from antipsychotics," Journal of Health Economics, Elsevier, vol. 40(C), pages 26-39.
    7. Scott E. Yonker, 2017. "Do Managers Give Hometown Labor an Edge?," Review of Financial Studies, Society for Financial Studies, vol. 30(10), pages 3581-3604.
    8. Yujing Gong & Cheng Yan & Kung‐Cheng Ho, 2021. "The effect of managerial ability on corporate social responsibility and firm value in the energy industry," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 28(2), pages 581-594, March.
    9. Loureiro, Gilberto & Makhija, Anil K. & Zhang, Dan, 2011. "Why Do Some CEOs Work for a One-Dollary Salary?," Working Paper Series 2011-7, Ohio State University, Charles A. Dice Center for Research in Financial Economics.

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    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G3 - Financial Economics - - Corporate Finance and Governance

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