PhD CEOs and firm performance

Andrew Urquhart,Hanxiong Zhang

doi:10.1111/eufm.12316

Andrew Urquhart, Hanxiong Zhang

Open Access

https://doi.org/10.1111/eufm.12316

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Abstract

AbstractThis paper investigates the relationship between the education of a Chief Executive Officer (CEO) and firm performance and provides robust evidence that firms led by CEOs with PhDs outperform their peers. We find that CEOs with PhDs increase firm performance by 3.03% while CEOs with a PhD from a highly ranked university increase firm performance by 4.65%. Our results are robust to endogenous CEO selection, transition firms, alternative rankings, unobserved firm characteristics and the network of the CEO. We also show that the increase in firm performance is due to a tighter control of costs and superior cash flow management.

Highlights

URQUHART AND ZHANGThe corporate governance literature is abound with studies examining the personal characteristics of Chief Executive Officers (CEOs) and which of them drive the decision making of the CEO and influence firm performance
We find that CEOs with a PhD education significantly improve firm performance over the year, but does this increase in performance continue over the few years? To examine this, we re‐estimate our panel regressions but instead of using the year industry‐adjusted return on assets (ROA) as the dependent variable, we use the average of industry‐adjusted ROA over the 3 years to
This study investigates the relationship between the education level and quality of a CEO and firm performance

Summary

Introduction

URQUHART AND ZHANGThe corporate governance literature is abound with studies examining the personal characteristics of Chief Executive Officers (CEOs) and which of them drive the decision making of the CEO and influence firm performance. One life experience that has received limited attention in the literature is the education of a CEO. Chevalier and Ellison (1999) document a positive relationship between managers' education and mutual fund performance, where managers with undergraduate degrees from Ivy League universities generate higher risk‐adjusted returns. They show that managers with Ivy League MBA degrees achieve higher returns entirely by shifting towards greater systematic risk. King et al (2016) examine bank performance and show that CEOs with MBAs outperform their peers by arguing that management education delivers the skills required to manage large banks and achieve successful performance

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