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How much CEOs matter to firm performance:
"Do CEOs matter?" has been a perennial question in management discourse. But "the CEO effect" has been notoriously difficult to isolate -- a moving target caught in the slipstream of dynamic forces that shape firm performance.
So Morten Bennedsen, INSEAD Professor of Economics and the André and Rosalie Hoffmann Chaired Professor of Family Enterprise, along with colleagues Francisco Perez-Gonzalez (ITAM and NBER) and Daniel Wolfenzon (Columbia University and NBER) decided to find out how much CEOs matter by measuring the impact on firm performance when a CEO is absent, specifically, hospitalised.
They find, in a forthcoming paper, "Do CEOs Matter? Evidence from Hospitalization Events", soon to be published in the Journal of Finance, that the financial ramifications of CEO hospitalisation are significant.
Based on data of nearly 13,000 Danish SMEs between 1996 and 2012, Bennedsen and his co-authors find that five-to-seven day hospitalisations sent firm profitability tumbling by 7% in the year of illness. Longer hospital stays of 10 days or more wreaked even deeper damage, lowering operating return on assets (OROA) by a full percentage point.
Journal Reference
Morten Bennedsen, Francisco Pérez-Gonzalez, Daniel Wolfenzon. Do CEOs Matter? Evidence from Hospitalization Events, The Journal of Finance[$] (DOI: 10.1111/jofi.12897)
See also: Phys.org
[Source]: INSEAD research
(Score: 4, Insightful) by MostCynical on Tuesday April 07 2020, @02:58AM (3 children)
but they didn't test CEO vs No-CEO. They tested "market perception of ability of company to cope with indisposed CEO, reflected in share price"
A better, but far harder to answer question would be "How much value did CEO add to the share price, above any average changes in similar stocks and across all stocks in the period, and how much of any positive variance can be attributed to the CEO and not other identifiable causes?"
"I guess once you start doubting, there's no end to it." -Batou, Ghost in the Shell: Stand Alone Complex
(Score: 0) by Anonymous Coward on Tuesday April 07 2020, @03:15AM
There's nothing in the article about stock prices. The article and the paper abstract do mention "profitability", but that's a bit different from stock price.
(Score: 3, Interesting) by JoeMerchant on Tuesday April 07 2020, @12:37PM
Oh, but that question is too hard and too open to subjective influences... so we just picked an irrelevant objective situation instead so that people have something that can't be immediately shot down as opinion to point to that sounds like what they're trying to say, even though it's not.
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(Score: 2) by The Mighty Buzzard on Wednesday April 08 2020, @02:37PM
Yeah, it was a pretty pointless study because the folks behind it didn't understand what they were even studying.
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