Abstract
Firm performance is a crucial factor in how CEOs are evaluated. However, a CEO can be repeatedly lucky or unlucky, adding noise to performance outcomes as a measure of managerial ability. In this study, I examine how much of the observed cross-sectional dispersion in outcomes can be attributed to differences in luck as opposed to differences in skill. Using bootstrap simulations, I show that, even if all CEOs were equally skilled, we can expect substantial differences in performance outcomes. When comparing the simulated distribution of outcomes to the actual empirical distribution, I find that the best performing CEOs perform too well relative to the median to be completely explained by luck alone. However, the true underlying differences in skill are substantially smaller than suggested by simply looking at the raw performance differential.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
