CEO characteristics and firm performance: focus on origin, education and ownership

Sani Saidu

doi:10.1186/s40497-019-0153-7

Abstract

This study examines the impact of the chief executive officer’s (CEO) ownership, education and origin on firm performance. The study uses balanced panel data for 6 years from 2011 to 2016 to run ordinary least square regression. Three variables that include the CEO origin, education and ownership are investigated in relation to firm performance. These characteristics are some of the basic CEO characteristics that are rarely considered by prior studies. The study uses a sample from firms in the financial sector listed on the Nigerian Stock Exchange from 2011 to 2016. The findings indicate that CEO education improves profitability. Similarly, stock performance gets improved when the CEO has prior experience of the firm before being appointed as the chief executive officer. The findings will be useful to shareholders in making an informed decision in selecting the right CEO to manage the firm. Further studies need to consider not only the CEO ownership, but also whether the interest in ownership makes them more powerful.

Highlights

Studies have identified ownership as one of the good sources of power both in theory and in practice (Wu et al 2011)
ROA return on assets, ROE return on equity, CEO_OWN chief executive officer (CEO) ownership, CEO_EDUC CEO education, CEO_IN CEO insider, SIZE firm size, CFO operating cash flow, LEV leverage ratio. *p < 0.05, **p < 0.01 range
ROA return on assets, ROE return on equity, CEO_OWN CEO ownership, CEO_EDUC CEO education, CEO_IN CEO insider, SIZE firm size, CFO operating cash flow, LEV leverage ratio on firm performance measured by stock price, ROA, and ROE

Summary

Introduction

Studies have identified ownership as one of the good sources of power both in theory and in practice (Wu et al 2011). The major determinant of agent-principal relationship in agency theory is the ownership of the company. Unlike the case of agency relationship, the CEO who acquires a good proportion of company shareholding will be an agent-cum-principal officer which gives him a good ground to influence almost every activity in the organization (Mio et al 2016). When the CEO has significant stock ownership, he can influence the selection of other directors, giving him an edge over the other members of the board. Having significant ownership will enable the CEO to influence the determination of the board member’s remuneration, scuffling their dismissal if need be, and dominate in most of the board decisions (Zhang et al 2016). This study resolves to unravel the agency issue in CEO ownership with its implication in firm performance in Nigeria’s highly regulated sector

Objectives

Findings

Discussion

Conclusion