Three Essays on Risks of Firms Led by Founder-CEOs

Abstract

This dissertation is comprised of three essays that focus on the topics related to risks of firms led by founder-CEOs. This research provides insights into how founder-led firms are different from nonfounder-led firms in terms of their operational and financial risk taking, litigation risk, and restructuring probabilities and outcomes. The empirical results are significant and robust. The first essay examines the relationship between founder-CEO firms and firm risk. Using a sample of S&P 1500 firms, our empirical results show that founder-led firms are associated with higher overall risk and operational risk, and lower financial risk than nonfounder-led firms. We further investigate the underlying characteristics of CEOs through which they influence the firm risk. We find that in founder-led firms, CEO-chair duality plays a significant role in determining the levels of overall risk and financial risk. The second essay investigates if firms led by founder-CEOs experience different litigation risk as compared to firms led by nonfounder-CEOs. Litigation risk is the risk of being involved in a lawsuit as a defendant, and being involved in litigation causes severe negative consequences both implicitly and explicitly. Using a sample of U.S. public firms, we find that founder-CEO firms are associated with lower litigation risk than nonfounder- CEO firms. The third essay studies the relationship between founder-CEOs and corporate restructuring. Our empirical analysis suggests that the likelihood of corporate restructuring is negatively related to having a founder as CEO, and that restructuring activities undertaken by founder-CEOs are more effective than restructuring activities by nonfounder-CEOs. These results highlight the importance of founder leadership in alleviating corporate restructuring concerns and in navigating a restructuring event in an effective way.