SoylentNews is people
SoylentNews
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, Touché) by Common Joe on Tuesday April 07 2020, @05:19AM (5 children)
This highlights the American dystopia. They expect a CEO being gone for 5-7 days would impact anything? Doesn't he go on vacations and have sick leave?
(Score: 1, Insightful) by Anonymous Coward on Tuesday April 07 2020, @01:48PM
True. And it points out the severe flaws in this study. This study doesn't mean that CEOs matter. It means that companies, boards, investors, etc. respond with significant concern when there is uncertainty with governance of their company. And rightly so.
This study doesn't say anything about the CEO mattering. The thing in charge could be a Magic 8 Ball randomly throwing out suggestions for company decisions. If the Magic 8 Ball was suddenly broken for 5-7 days, and there was uncertainty about who/what was in-charge or who/what would make the decision without the Great, Magnificent Magic 8 Ball, I'd bet you'd see similar effects to what's seen in this study.
(Score: 0) by Anonymous Coward on Tuesday April 07 2020, @04:29PM (1 child)
The biggest impact that most CEOs being gone for a week would be to the caddy's tip balance at the local golf course.
(Score: 0) by Anonymous Coward on Tuesday April 07 2020, @10:39PM
If I got to choose where to have meetings it would probably be on the golf course, and I don't even play golf. Just get me out of the chair doing something than all the he-said she-said bullshit.
(Score: 1) by khallow on Tuesday April 07 2020, @05:25PM
I doubt it. Keep in mind how this works in the real world. A CEO going on sick leave and the media hearing about it could mean anything from a few days of recovery from some minor but noxious infectious disease like norovirus to the CEO getting fired because the auditors just found the cooked books, and/or dead or dying with power struggles imminent. You can't take a company's word at face value on these things. It's the uncertainty not the certainty that impacts stock prices.
This is a great example of modern Kremlinology [wikipedia.org], sifting through indirect clues to try to figure out why some large bureaucracy chose to announce what should be a relatively minor event. It could be because the CEO was about to do something important in public view (like wrap up negotiations on a buyout) and their absence needed to be explained. Or it could be something much worse with the company coming up with a short term excuse while their PR/legal people figure out how to spin the awful news.
(Score: 2) by The Mighty Buzzard on Wednesday April 08 2020, @02:41PM
I thought it highlighted the complete lack of understanding by most of the people spouting off about CEOs.
My rights don't end where your fear begins.