Limbach, Peter Schmid, Markus M. Scholz-Daneshgari, Meik
Year of Publication:
CFR Working Paper 16-11
We examine how CEOs' impact on firm value varies over time. We document a hump-shaped relation between CEO tenure and firm value which is subject to meaningful variation depending on industry dynamics, the business cycle, and CEOs' adaptability to changes. Semi-parametric estimations, stock returns to sudden deaths and to takeover announcements, as well as tests for extrapolation, survivor-ship, and endogenous CEO-firm matching and turnover confirm our results. They suggest that a considerable fraction of high-tenure CEOs is no longer the optimal match for their firms which seem to have difficulties, due to governance rather than labor market frictions, replacing incumbent CEOs.
CEO adaptability (within-)CEO heterogeneity CEO tenure CEO term limits environmental dynamics firm value investments