CEO Quality Research Articles

Effects and Mechanisms of CEO Quality in Public Education

Abstract ‘CEOs’ of public schools in many countries have authority and responsibilities that can greatly affect the quality of schooling. This paper estimates the impact of CEOs on student outcomes in Israeli elementary schools. We estimate CEO quality in two ways—once using schools that do not switch CEOs and once using schools that do. We show that switches are exogenous and are not correlated with potential outcomes. CEO quality positively affects students’ test scores and behavioural outcomes, with pronounced effects for disadvantaged schools. Potential mechanisms show that high-quality CEOs lead to improvements in school priorities, working procedures and violence reduction.

Blown Away by hurricane Katrina: The Impact of Exogenous Shocks on CEO Dismissals

We utilize natural exogenous shocks to contrast alternative theoretical mechanisms underlying CEO dismissal. Specifically, in the context of major natural disasters, we analyze forced CEO dismissals occurring in over 2,500 US companies over 19 years (1994 – 2013). When contrasting existing theoretical explanations (e.g., natural shocks to have a zero effect because they are exogenous to CEO quality; natural shocks to have a negative effect because boards aim for internal stability during times of external instability, etc.), we identify a novel mechanism. Specifically, our results suggest that boards utilize shocks as a publicly visible excuse to legitimize dismissals—highly visible, high-stakes decisions that are often controversial. For example, we find that shocks’ entire dismissal effect goes back to CEOs showing low pre-shock peer-adjusted performance (i.e., signaling low quality) or that different board compositions (differing in their degree of aiming for public acceptance) moderate our main effect.

Factors associated with the waiting time for access to specialized oral healthcare services in Brazil

To explore the factors associated with the waiting time for access to specialized care at Dental Specialties Centers (CEO, in Portuguese), by specialty (Stomatology, Surgery, Endodontics, Patients with Special Needs and Periodontology). The study was a descriptive and analytic exploratory secondary analysis of data from the 2nd phase of the National Program for Improving the Access to and Quality of CEO (PMAQ-CEO, in Portuguese). All 1097 CEO in Brazil were evaluated in loco in 2018. Binary logistic regression was used to analyse the likelihood of users having a shorter time for assistance at CEO, by specialty. The highest and lowest median waiting times were found for endodontics (30days) and stomatology (5days), respectively. Smaller centres (type I CEO) had a shorter waiting list for patients with special needs (95%CI: 1.20-3.37), Endodontics (95%CI: 1.03-3.02) and Surgery (95%CI: 1.04-3.05). As for the specialties with the longest waiting list (Endodontics and Surgery), the direct route of user access to CEO was more effective than that regulated by the Healthcare System. Factors related to the service, management, and to the form of relationship with primary health care influenced the waiting time for specialized care in CEO. The contact between professionals in the oral health network (primary care and secondary) was associated with a shorter waiting time, regardless of the specialty.

Oral health care for people with disabilities in Brazil: Transition from the specialized dental services between 2014 and 2018

To identify changes in the dental service provision to people with disabilities (PD) in the Dental Specialties Centers (acronym CEO in Portuguese-Centro de Especialidades Odontológicas) between the first and second cycles of the Program for the Improvement of Access and Quality of CEO and analyse factors associated with any changes. This nationwide ecological time series study adopted the CEO as the analysis unit. The 827 CEO who participated in the two program's cycles (2014 and 2018) were included. Data on the structure and the work process were considered to identify features of providing services to PD in both cycles. Latent transition analysis (LTA) was performed to identify latent status (LS) with similar features and model the transition between LS over time. Models with five variables and with two to five LS were tested, considered best conceptual interpretability and best model fit parameters: human resources structure (dentist working exclusively with PD) and work process that identified guarantee of PD treatment at the CEO, the CEO's interface with primary care, and the interface with tertiary care. Spatial analysis was performed to identify spatial patterns of LS in the Brazilian territory with choropleth maps. A multinomial logistic regression model was performed to identify factors associated with changes in the provision of CEO (improved, remained or worsened). The best-fit model identified four LS: 'Better', 'Medium better', 'Medium worse' and 'Worse'. CEO remained in the LS 'Better' (94%), LS 'Medium' (5.3%) and LS 'Worse' (78.4%). It is noteworthy that the highest proportion of CEO, in both cycles, was in the LS 'Better', featured by the CEO, characterized by all the CEO guaranteeing treatment to users with PD, high proportions of professionals working exclusively with PD, and most CEO articulated with primary care and with tertiary care. However, there is a decrease in the number of postgraduate professionals specializing in this service profile (1.3%). The higher the population growth, the greater the likelihood of the CEO achieving 'improved' in the LS. Moreover, the higher the number of goals, the lower the likelihood of the CEO getting 'worse' in the LS. Advances in dental service provision were observed, with more significant transitions to the 'Better' class, with improvements mainly in the interface with primary and tertiary care. Disability will be an even more significant concern as the population ages. Initiatives that can remove barriers and empower PD are potent in the provision of oral health services.

It’s Not What You Say, But How You Sound: CEO Vocal Masculinity and the Board's Early‐Stage CEO Compensation Decisions

AbstractGrowing research in evolutionary psychology suggests that having a deep, masculine voice is beneficial to males in leadership positions because it signals physical strength. However, how this phenomenon plays out at the top of the modern organization is not clearly understood. We posit that CEO vocal masculinity positively influences early‐stage CEO compensation for male CEOs by biasing directors’ perceptions of CEO quality. Challenging the pervasive notion that evolved biases are deterministic, we also examine how environmental conditions (i.e., industry competitiveness) and audience characteristics (i.e., female representation on the compensation committee) moderate the effect of CEO vocal masculinity. Longitudinal analyses on a unique dataset consisting of interviews and speeches of male CEOs from publicly listed UK firms provide support for our hypothesized predictions.

The bright and dark sides of CEO hubris: Assessing cultural distance in international business

AbstractThis paper aims to enrich the behavioral theory of international business strategy by investigating how CEO hubris (i.e., excess pride and confidence) affects international strategic choices, that is, location selection, entry timing, and modes of entry into the target market. Specifically, we focus on the relationship between cultural distance and international strategic choices and consider hubris as a mechanism that influences CEOs' decisions. Our conceptual framework recognizes that the performance of international strategies managed by hubristic CEOs is extremely volatile. On the one hand, we corroborate the idea that hubris has a dark side that may lead to pernicious outcomes. On the other hand, we recognize a bright side of hubris related to the consideration that overconfidence may sometimes be seen as a necessary CEO quality that in turn differentiates one firm from the others.

The influence of learning and bargaining on CEO–chair duality: Evidence from firms that pass the baton

AbstractSome firms combine CEO and board chair positions after observing CEO performance. We propose that this approach, known as “passing the baton” (PTB), enables the board to learn about the ability and suitability of the CEO before awarding additional title of board chair. Consistent with learning, idiosyncratic stock‐return volatility declines following the CEO–chair combination. The market responds positively (Cumulative Abnormal Return (CAR) = 1.31%) to early promotions, suggesting that early promotions reveal directors’ private information about CEO quality. Compared to a matched benchmark, we observe no decline in firm's accounting performance in subsequent years. Although match‐adjusted stock returns begin to decline 2 years after combination in homogeneous industries, there is no stock‐return decline in heterogeneous industries where learning is more important. The evidence reveals the potential for entrenchment over time, but we find no evidence to suggest that CEO–chair combinations in PTB firms result from agency problems. Our results underscore the importance of balancing both learning and agency problems in corporate governance.

CEO Power and Luck: Impact of Stock Markets on Building Powerful CEOs

The optimal view of managerial power theory suggests that corporate boards reward CEOs with power for good firm performance as the boards' assessment of their ability is higher. In evaluating the CEO's quality, economic theory predicts that boards filter out luck from performance. Luck represents exogenous shocks to performance, such as market-wide conditions, that are outside the CEO's control. Contrary to the prediction, we find that CEOs are rewarded with power for luck. In the baseline specification, a one standard deviation increase in firm performance due to luck leads to a 3% increase in CEO power relative to the median. This finding is mainly driven by firms with weaker governance in terms of board structure and institutional ownership. We also find some evidence suggesting that CEOs who manage weakly governed firms are rewarded with power for good luck, but are not punished equally for bad luck. These results may suggest, given the opportunity, CEOs strategically time their entrenchment following good firm and market performance.

Understanding Corporate Governance Through Learning Models of Managerial Competence

AbstractShareholders, the board of directors, and potential future employers are continually assessing any CEO's quality. As documented by an extensive literature, such assessment plays a critical role in corporate governance because it generates incentives (good and bad), introduces assorted risks, and affects the various battles that rage among the relevant actors for corporate control. Consequently, assessment (or learning) is a key perspective from which to study, understand, and possibly even regulate corporate governance. Moreover, because learning is a behavior notoriously subject to systematic biases, assessment is a natural avenue through which to introduce behavioral and psychological insights into the study of corporate governance.

PMAQ - CEO External Evaluation: Revealing Indicators for Planning Services

Objective: To analyze the indicators of planning and management actions for the work process organization in Centers of Dental Specialties (CEO) presented in the external evaluation tool to the Improving Access and Quality of CEO - AIQP-CEO Program and to provide a follow-up and monitoring tool of goals. Material and Methods: Cross-sectional study with the use of secondary data from the external evaluation of 930 CEOs in Brazil. A descriptive analyses of indicators identified in the “Planning and managing actions for work process organization in CEO” sub-dimension was performed. It provides two monitoring tools: monthly production for each specialty, and monthly minimal and mandatory performance of CEO goals. Results: It was shown that 85.4% of CEO teams have made the monitoring of the goals established to each offered specialty, and 73.1% have performed self-assessment in the last six months, in which most of the teams (647 - 69.6%) have used the Self-Assessment to the Improving Access and Quality Program - SAIQP. It was demonstrated that of the 680 teams that performed self-assessment, 612 (65.8%) consider the results in the teamwork organization. Conclusion: The PMAQ CEO external evaluation brought important information to the qualification process of health services. Concerning the planning, the majority of teams performed the follow-up of goals and self-assessment, and they used the self-assessment results in the teamwork organization. According to results, some tools should be used to support CEO teams in the follow-up of the monthly production by specialty and in the monitoring of goals.

A Theory of Corporate Boards and Forced CEO Turnover

We model information sharing and subsequent voting among corporate directors, and use this framework to analyze coordination and communication problems in multi-agent boards. We consider a firm with an incumbent CEO of uncertain management ability and a board whose role is to evaluate the CEO for possible replacement. Each director receives an independent private signal about the CEO's ability, after which directors discuss the CEO's quality and subsequently vote to retain her or replace her with a new CEO. Each director has an incentive to replace a CEO of poor ability, since he owns some equity in the firm, whose long-run value is affected by the true ability of the incumbent CEO. However, if a director votes to fire a CEO but fails to oust her, the CEO can impose significant costs of dissent on him. In this setting, we characterize the equilibrium CEO firing decision made by boards with different characteristics, the optimal board size and board composition, and the effect of an additional imprecise public signal on the CEO firing decision. We also develop a dynamic extension to our basic model to analyze the timing of the board's CEO firing decision.

Does mutuality matter? Examining the bilateral nature and effects of CEO–CIO mutual understanding

Despite the criticality of a healthy partnership between CEOs and CIOs in organizations for effective business–IT alignment, we still know little about how crucial yet under-researched facets of mutual understanding compare between CEOs and CIOs and how their ability of mutual perspective-taking affects the quality of collaboration in their partnership. Drawing on two established theoretical models in social and personal relationship research, the perceptual congruence model (PCM) and the actor–partner interdependence model (APIM), our study examines 102 matched-pair survey responses of CEOs and CIOs using dyadic data analysis. Our findings show that both executives’ actual opinions on important business and IT topics are more similar than both perceive them to be. Accordingly, perceptions of each other’s opinions are negatively biased away from their real opinions. Moreover, our study demonstrates that CIOs’ understanding of their CEO plays a more pivotal role in predicting the quality of CEO–CIO collaboration than CEOs’ understanding of their CIO; this highlights the disparate importance of an active and passive role of understanding in the CEO–CIO partnership. Implications for research and practice are discussed.

CEOs in family firms: Does junior know what he's doing?

We model the evolution of CEO quality in family firms. When heirs work toward a common goal alongside an older generation, Bayesian updating attributes success mostly to the older (proven) agent. Thus, heirs learn little about their own skill. This effect is strongest after the founder, implying that family firms tend to either die immediately or be relatively long-lived. More generally, we obtain an even/odd fluctuation in generational quality. Because uncertainty breeds caution, our analysis points to a conservative managerial style in family firms and emphasizes the importance of external screening mechanisms, especially for heirs following a very successful generation.

Board Member Private Information and Insider Trading Around CEO Turnovers

Theories of corporate boards assume that board members of a firm generate private information about the quality and performance of its CEO in the process of monitoring and advising him, and may use this information to decide whether or not to fire him. In this paper, I make use of data on insider trading around CEO turnovers to analyze, for the first time in the literature, whether board members indeed possess private information about CEO quality and the firm's prospects subsequent to a CEO turnover. I document the trading pattern of three types of firm insiders: board members, top corporate officers (excluding board members and the CEO), and the CEO himself. I then study whether trading by insiders (board members and top corporate officers) has predictive power for the nature of CEO turnovers (forced versus voluntary versus no turnover); the announcement effect of a CEO turnover; and the long-run post-turnover stock return performance of the firm. I find that trading by board members has predictive power for the nature of CEO turnovers: the larger the net selling from board members, the higher the probability of a forced turnover. Further, trading by members of more independent boards, larger boards, and boards with less entrenched CEOs has greater predictive power. Trading by board members also has predicative power for the announcement effects of a forced CEO turnover: a larger amount of selling by board members is associated with a more favorable announcement effect. Trading by board members immediately after a forced CEO turnover also has significant predictive power for subsequent long-run stock returns: the larger the net buying by board members, the better the subsequent long-run stock returns. Overall, my results are broadly consistent with the notion that board members possess private information about the firm and its CEO around the time of a CEO turnover.

Examining CEO succession and the role of heuristics in early‐stage CEO evaluation

AbstractThis study develops and tests predictions regarding factors that influence early‐stage CEO evaluation. We suggest that contextual elements of the CEO succession process will influence the heuristics that directors employ to aid in their early evaluation of a CEO because traditional performance metrics, such as firm performance, are less diagnostic of CEO quality in the first years of their tenure. Broad empirical support for our theoretical arguments is shown in a sample of Fortune 1000 firms. Copyright © 2012 John Wiley & Sons, Ltd.

Third-party endorsements of CEO quality, managerial discretion, and stakeholder reactions

Research on the influence of third-party endorsements of CEO quality generally does not account for the context in which such signs manifest. To address this limitation, the present study examines how a CEO's level of managerial discretion shapes boards' and shareholders' responses to external endorsements of his or her quality. Managerial discretion refers to the range of strategic options that executives have at their disposal in a given business context. The findings indicate that boards only react to CEO endorsements in high-discretion settings, and this reaction is positive (i.e., more pay). In contrast, shareholders – regardless of discretion levels – positively respond to CEO endorsements in the short-term, while these responses become more equivocal over the time. These results suggest that – at least in the short term – directors more adeptly interpret and respond to external information about CEO quality than shareholders.

The Death of the Deal: Are Withdrawn Acquisition Deals Informative of CEO Quality?

Withdrawn acquisition bids provide a unique setting to examine the market response to positive revelations of a CEO’s quality. This study focuses on a hand-collected sample of acquirer CEOs who withdraw rather than raise an acquisition bid when the price becomes increasingly expensive (the Restraint Sample). The unwillingness to increase the offer price may convey favorable signals regarding the CEO’s skill, preference for private benefits, and predisposition to overconfidence. Firms in the Restraint Sample earn 5% higher withdrawal returns than a control group of firms that withdraw for other reasons. Moreover, the market response to the withdrawal is higher when CEO quality is uncertain and CEO discretion is high. Information on CEO quality also translates to better labor market outcomes: CEOs in the Restraint Sample are less likely to be replaced and more likely to advance to a CEO role at a larger firm than a control group of CEOs. The results of this paper indicate that both the capital and labor markets attach significant value to CEO-specific information, suggesting that unobservable qualities of a CEO can meaningfully impact firm outcomes.

CEO's Twitter Message and Image: Exploring CEO's Twitter Messages and Followers

The purpose of this current study is to examine CEO image presented in messages of CEO twitter and perceived by CEO twit followers. To conduct this study, we selected two CEOs, ChanJin Lee and HyeonMyeong Pyo who are top ranking based on a number of followers in Korea. We investigated each CEO's Tweet, RT, Reply, and RT+Reply using three CEO image factors: CEO personality, CEO quality, and CEO outward characteristics. Also, followers were asked what image mostly they have based on those three image factors. The results showed that for ChanJin Lee, CEO quality were more presented in twitter than CEO personality and CEO outward characteristics, and CEO Lee's followers also perceived that Lee has more CEO quality image than others. Pyo, HyeonMyeong has CEO quality image in twitter than others, and his followers thought that he had more CEO outward characteristics image than others.

CEOs in Family Firms: Does Junior Know What He's Doing?

We model the evolution of CEO quality in family firms. Agents learn about their own qualities over time by observing the successful outcome of their own actions, while failures drive agents out of the market. We show that joining the family business, while reducing the probability of failure, impairs the learning process. This implies that the pool of family CEOs, shielded from failure and with lower learning rates, is endogenously worse than that of outside CEOs in the long-run. Our model also produces an even/odd fluctuation in intergenerational quality which is consistent with existing empirical literature. Finally, we show that an increase in bankruptcy costs and capital costs increase the probability an heir joins the family firm.

Are Forced CEO Turnovers Good or Bad News?

To gain insights about the quality of board’s firing decisions, we investigate abnormal stock returns and operating performance around CEO-turnover announcements in a new handcollected sample of 208 “clean” turnover events between January 1998 and June 2009. Unlike the majority of previous studies, we show that forced turnovers do not per se represent a positive signal to shareholders. On the contrary, investors seem to critically assess the board’s firing decision by considering the quality of the departing manager. When an outperforming CEO is dismissed or forced to leave - an event that occurs in as many as 35% of all dismissals in our sample - shareholders disesteem the board’s decision. This finding is confirmed in multivariate cross-sectional regressions, holds for different time subperiods, and is robust to various event-test specifications and proxies of CEO quality.