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Do CEOs Matter? Corporate Performance and the CEO Life Cycle

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  • Limbach, Peter
  • Schmid, Markus
  • Scholz, Meik

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.

Suggested Citation

  • Limbach, Peter & Schmid, Markus & Scholz, Meik, 2015. "Do CEOs Matter? Corporate Performance and the CEO Life Cycle," Working Papers on Finance 1511, University of St. Gallen, School of Finance, revised Apr 2016.
    • Handle: RePEc:usg:sfwpfi:2015:11
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    References listed on IDEAS

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    Cited by:

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    3. Jaspersen, Stefan & Limbach, Peter, 2020. "Screening Discrimination in Financial Markets: Evidence from CEO-Fund Manager Dyads," CFR Working Papers 17-02, University of Cologne, Centre for Financial Research (CFR), revised 2020.

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    More about this item

    Keywords

    (within-)CEO heterogeneity; CEO tenure; CEO term limits; economic environment; firm value; mergers and acquisitions;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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