CEO Selection Research Articles

CEO optimism, CEO selection, compensation, and corporate investment decision: The case of CEOs who were rehired as CEOs by another firms after turnover

What happens to CEOs after they are let go by their firm? This study is designed to investigate CEOs who are rehired as CEOs by another firms after turnover. CEOs defined as “moderately optimistic” and those who left voluntarily from their departing firms, are younger, have better prior performance, and work in larger firms are found to have a greater likelihood of being rehired as a CEO by another employer. Moreover, new-hire firms with higher growth opportunity and higher R&D expenditures are found to be significantly more willing to hire overconfident CEOs. Furthermore, more-optimistic CEOs are found to receive higher total compensation from their new-hire firms than CEOs who are less optimistic. Finally, overconfident CEOs working in firms with high growth opportunity and higher R&D show a significantly greater tendency toward increasing firm investment.

Malaysian Chinese CEOs and Firm Performance

This paper investigates whether Malaysian Chinese CEOs produce higher firm performance, in particular, the effect of ethnicity on financial performance from cultural dimensions. While the cultural dimension receives widespread attention in economics and sociology research, it has received much less attention in finance studies. The data covered were hand collected information on CEOs and board characteristics of firms listed in Bursa Malaysia over the 2009-2015 period. Using panel regression, the study documented empirical evidence that Malaysian Chinese CEOs deliver higher firm performance, especially if they graduated from overseas. Results are consistent even after controlling for firm level corporate governance characteristics. The findings suggest that Malaysian Chinese CEOs possess some quality traits that enable them to deliver higher firm performance. This is not only due to their cultural beliefs, but education profile as well. These findings contribute practical implications for CEO selection in corporations.

Privilege and Prejudice: How Shareholder Primacy Affects the Role of Social Class in CEO Selection

Prior research has found that contenders of upper-class backgrounds are favored for CEO positions in Corporate America over those of lower- and middle-class backgrounds. However, in the decades since the last study was conducted, Corporate America has undergone significant changes that have institutionalized shareholder primacy as the dominant organizing principle. This study examines the implications of these societal changes, theorizing that the upper-class bias in CEO selection has steadily become amplified since the 1970s. We further hypothesize that companies with concentrated institutional ownership are more likely to be beholden to the shareholder primacy principle and, as a result, exhibit a stronger preference for upper-class CEO contenders. In contrast, we posit that collective bargaining agreements with unions serve as a countervailing force to shareholder primacy, manifesting in a reduced class bias in CEO selection. Using a novel dataset that compares the social class backgrounds of 454 rival candidates who competed for 227 CEO selection events during 1970-2013, we find considerable support for our hypotheses.

Why do Narcissists Become CEOs? An Analysis of Supply and Demand for Narcissistic CEOs

The selection of a new CEO is a decisive event for the future direction of a company and might set it up for success or failure. When selecting a CEO, candidates will be investigated based on multiple criteria such as outsider status and education to achieve the best fit for the company. However, little research has investigated why candidates with specific personality traits such as narcissism get selected. This study investigates the relationship between firm-level, predecessor CEO-level, and market-level factors as antecedents to the selection of a narcissistic CEO. We analyze a sample of 317 CEO successions of 237 companies listed in the S&P500 index between 2007 and 2017. Our results indicate a positive relationship between firm growth, firm size, and predecessor CEO narcissism levels, as well as a weak, negative relationship between predecessor CEO tenure and the narcissism level of the successor CEO. Our findings address the so far little researched domain of antecedents to CEO narcissism and emphasize the effects of firm-level and predecessor CEO-level factors as antecedents to the selection of a narcissistic CEO and consider market turbulence as a moderating effect of these relationships. We also provide practical implications for firm executives and directors.

CEO Personality: The Cornerstone of Organizational Culture?

Organizational culture is widely seen as an important element in a firm’s success or failure. While there is almost universal agreement that leaders define and shape organizational culture, there is little research exploring how they do this. We propose that a leader’s personality and values are the cornerstone of organizational culture. Using a validated natural language processing instrument, we used earnings call data to collect data on the personalities of 460 CEOs in 309 firms and matched this to organizational culture ratings based on Glassdoor employee ratings for the period 2015-2019. Results show strong, interpretable associations between a CEO’s personality and the culture of the firm—and this association is strengthened the longer the CEO is in the role. Further, by examining 128 succession events during this period, we also show that, consistent with attraction-similarity-retention logic, there is some weak evidence that the existing culture of a firm can be related to the selection of a new CEO. We discuss the implications of these findings for future research on organizational culture.

CEO Selection and Executive Appearance

AbstractSurvey assessments have found limited evidence of benefits of executive attractiveness. We use an objective measure of facial attractiveness that is correlated with survey assessments but less noisy and identify several benefits from executive facial attractiveness previously found in the general population but heretofore empirically elusive among executives. We examine the effect of both measures on executive compensation, promotion to CEO and the corresponding shareholder reaction, and promotion to board chair. The objective measure identifies significantly positive labor market effects for executive attractiveness in all outcomes in contrast to survey assessments of attractiveness that do not correlate with any outcome.

Tax Footnotes Readability and CEO Narcissism: Evidence from Indonesia

CEO Narcissism has the potency to influence individual characteristics positively or negatively. We aim to examine the relationship between narcissism as CEO-level characteristics and tax footnotes readability. We measure narcissism using the CEOs’ photos on the firms’ annual reports. Using 799 firm-year Indonesia listed firms from 2015 through 2019, we find that higher CEO narcissism is related to a higher tax footnote readability. This result is robust for alternative measures of readability. By examining the relationship between CEO narcissism and tax footnotes readability, we provide an additional important factor to boards for consideration during the CEO selection. We also offer insight for shareholders or investors to consider CEO traits, namely narcissism, in assessing and interpreting tax footnotes readability.

Do gender-diverse boards lead to selection of female CEOs: a study of life insurance firms in the USA

Do gender-diverse boards lead to selection of female CEOs: a study of life insurance firms in the USA

CEO education in Russia: First systematic evidence and a research agenda

We use a novel hand-collected dataset to provide first systematic evidence on CEO education in Russian publicly traded companies over 2009–2020, including its link to other characteristics of CEOs and key attributes of firms. We find that almost all CEOs in Russia have higher education, that PhD degrees are unusually common, while MBA degrees are relatively rare, that CEOs with different levels of education differ among a number of key socio-demographic characteristics and that the appointment of CEOs with various educational levels is systematically related to firm-level attributes, including ownership and governance structure. In particular, PhD CEOs, who are relatively older, are more likely to have prior connections to government and also tend to be chosen by companies with state ownership, while MBA CEOs, who are relatively younger, are more likely to be chosen by companies with foreign ownership. An important implication is that establishing a causal effect of CEO education on firm behavior and performance requires addressing endogeneity problems caused by potential omitted variables at the CEO level and non-random selection of CEOs by different types of firms. The article outlines several areas for future research.

CEO selection in intergovernmental organizations: the clash between control and efficiency in governance

CEO selection is a crucial governance function influencing and driving the strategic direction of organizations. Extant research has largely assumed that boards are an efficient mechanism vested with the CEO selection function. However, boards are not always delegated with this function. In some organizations, the principals directly select the CEOs to keep effective control over the organization. Drawing on the clashing rationales of control and efficiency, this article identifies the factors influencing the governance choice of whether CEO selection is directly carried out by the principals or channeled through the board. Using a Bayesian logistic regression on a dataset of all global intergovernmental organizations, we find that the substantive character of ownership (i.e., capacity and incentive) matters more than the structure (i.e., diversity and dispersion) in such a governance choice. We also find that organizational characteristics barely have direct and moderating effects on the relationship between ownership structures and the governance choice of CEO selection. Our study has important implications for the literature on CEO selection, and strategic corporate governance research in general.

See(k)ing a Strong Leader? How Evolutionary Biases Affect CEO Selection Decisions and the CEO/Board

Corporate governance scholars have long been interested in understanding boards’ selection of new CEOs and the ongoing Board/CEO relationship, with particular emphasis on how micro- and macro-social factors can shape (and bias) these critical decisions. We extend this research in behavioral corporate governance by advancing a complementary perspective rooted in evolutionary psychology, in which we identify potential biases in board-level decisions vis-à-vis perceptions of CEOs’ physiological features, specifically formidability signals. We first suggest that these evolutionary biases will predict the likelihood of the board’s selection of formidable CEOs, positing that situational conditions, by shifting the perceived cost/benefit trade-offs associated with CEO formidability, will lead boards to be more likely to hire formidable CEOs when threats from interfirm competition are salient, and less likely to hire such CEOs when threats from intrafirm misconduct are salient. We suggest that these evolutionary biases will also affect the board's structuring of the post-selection Board/CEO relationship. Specifically, where boards perceive a congruence between CEO formidability and the situation at hand, we expect a more collaborative Board/CEO relationship, and where boards perceive incongruence, we expect a more control-oriented Board/CEO relationship. We conclude by discussing the theoretical and empirical implications of our perspective for future governance research.

The role of board members’ networks in acquiring and using information for outsider CEO selection

Outsider CEO selection is one of the most difficult decisions for boards due to lack of information for evaluating suitable candidates. We hypothesize and find evidence that boards use their professional networks to obtain information about outsider CEO candidates in a sample of 318 outsider CEO appointments in S&P 1500 firms from 2004-2013. Our hypothesis that direct ties provide more reliable information and are thus more likely to lead to a candidate being selected than indirect ties was supported. We did not find support for the hypothesis that ties to members of the nominating committee or to more senior board members increase the likelihood of being selected, which indicates that in outsider CEO selection information quality matters more than individual board members’ role or status.

The role of CEO emotional stability and team heterogeneity in shaping the top management team affective tone and firm performance relationship

In this paper, we aim to bridge the micro-macro divide by addressing continued calls from strategic leadership and affect researchers to examine the black box to consider how CEO characteristics relate to top management team (TMT) affective experiences, and, in turn firm outcomes. We further consider the role of one key contextual factor in this relationship: TMT heterogeneity. We predict that CEO personality, specifically, emotional stability, is positively associated with TMT affective tone. Moreover, we posit that the relationship between TMT affective tone and firm performance depends on TMT task-related heterogeneity, such that positive affective tone benefits firm performance in heterogeneous TMTs, whereas negative affective tone benefits firm performance in homogeneous TMTs. Using a novel methodology that measures key psychological aspects of the CEO and TMT, we examined 50 TMTs from publicly-traded companies to test our predictions. Our findings offer theoretical contributions to the strategic leadership, affect and diversity literatures as well as managerial applications for CEO selection and management and managing diversity in upper echelons.

The Determinants of Foreign Subsidiary CEO Selection: Effects of Internal and External Network Embeddedness of Foreign Subsidiaries and Market Characteristics of Host Country

The Determinants of Foreign Subsidiary CEO Selection: Effects of Internal and External Network Embeddedness of Foreign Subsidiaries and Market Characteristics of Host Country

The Changing Role of CEOs in Dutch Listed Companies, 1957–2007

This paper looks at the position of CEOs in Dutch listed companies in the context of institutional change. Following up on discussions on Varieties of Capitalism and the contrasts between coordinated and liberal market economies, we explore the position of the CEO in the Netherlands in the second half of the twentieth century. On the basis of our database of Dutch CEOs, as well as an analysis of articles and published interviews, we show that the move toward a more liberal market economy had a clear impact on the position of CEOs and on the way their role was perceived. This paper highlights the importance of studying leaders in their historical context, with implications for the selection of future CEOs as they face increasing pressure on issues such as inequality and climate change.

Are better-connected CEOs more socially responsible? Evidence from the U.S. restaurant industry

Extensive research has documented how corporate social responsibility (CSR) outcomes are determined by CEOs' intrinsic characteristics, while their social network status has been under-researched. Building on impression management theory and resource-based theory, the current study analyzes the association between CSR activities and top management's position in the social hierarchy, i.e., network centrality. The heterogeneous effects across different restaurant and CSR types are examined based on stakeholder theory. Using a panel dataset of publicly traded U.S. restaurant companies and a novel dataset of CEO network centrality, we find that firms with highly connected CEOs are involved in more socially responsible activities. In addition, the marginal effect of network centrality on CSR is stronger for fast-food than for full-service restaurants and more prominent for external than internal stakeholder subcategories. The results advance the determinant analysis of CSR and provide managerial implications for CEO selection and policy suggestions on CSR promotion.

Corporate risk: CEO overconfidence and incentive compensation

PurposeThe purpose of this study is to investigate the association between corporate risk and the interaction between CEO incentive compensation and CEO overconfidence.Design/methodology/approachThis empirical study performs random and fixed effect (FE) regression analysis. It uses option-implied measures of CEO overconfidence.FindingsThe authors contribute to the existing literature by showing (1) that the positive association between high CEO incentive compensation and corporate risk only exists in the sphere of overconfident CEOs and (2) that the positive association between overconfident CEOs and corporate risk only exists in the sphere of high CEO incentive compensation. The authors show that the combination of high CEO incentive compensation and CEO overconfidence is associated with an increase in corporate risk of approximately 6% while the individual effects are for all practical reasons negligible. The results imply that only the combination of high CEO incentive compensation and CEO overconfidence is associated with a significantly elevated level of corporate risk.Research limitations/implicationsThe findings are based on S&P 1500 non-financial firms in the period 2007–2016.Practical implicationsThe findings have important implications in terms of CEO selection and compensation.Originality/valueThis study provides empirical evidence on the importance of the dual presence of high CEO incentive compensation and CEO overconfidence for corporate risk. The previous literature has primarily investigated these phenomena in isolation.

The Board's Role in CEO Selection

Dr. Linda Henman is the author of six books, including Tough Calls: How to Move Beyond Indecision and Good Intentions. She has more than 35 years of experience working with executives and boards in Fortune 500 companies and small businesses to help them exceed their strategic objectives by maximizing talent. In this article, Dr. Henman explores the various factors boards should take into account when selecting a new chief executive officer for their organization, and offers a step‐by‐step process for doing so.

CEO selection, reference setting, and postsuccession strategic change

PurposeDrawing on the literature on CEO succession research and impression management, the present study examines how the selection of CEO successors affects their motivation to initiate postsuccession strategic change. Based on the perspective of reference-dependence in prospect theory, the study also explores the impact of boards' reference-point setting on the intensity of CEO successors' inclination to change corporate strategy after assuming office.Design/methodology/approachTwo-stage Heckman model and a spline function analysis are used to analyze data of 4,373 firm-year observations from Chinese listed companies between 2001 and 2016.FindingsThe empirical findings indicate that the intensity of CEO successors' willingness to change corporate strategy is diluted by the gap between the focal firm's performance on succession and its prior performance, while it is strengthened by the gap between the focal firm's performance on succession and the industry-average level of performanceOriginality/valueBy establishing a theoretical model, the present study analyzes the process of CEO selection to explore the role of boards of directors in this process and its effect on CEO successors' willingness to initiate postsuccession strategic change. Significantly, this study shows that the boards of directors would adopt internal and external reference setting when evaluating CEO successors in the postsuccession phase, which would impact the intensity of successors' motivation to manage impression by initiating postsuccession strategic change.

Corporate Risk: CEO Overconfidence and Incentive Compensation

Purpose – The purpose of this study is to investigate the association between corporate risk and the interaction between CEO incentive compensation and CEO overconfidence. Design/methodology/approach – This empirical study performs random and fixed effects regression analysis. It uses option-implied measures of CEO overconfidence. Findings – The authors contribute to the existing literature by showing 1) that the positive association between high CEO incentive compensation and corporate risk only exists in the sphere of overconfident CEOs and 2) that the positive association between overconfident CEOs and corporate risk only exists in the sphere of high CEO incentive compensation. The authors show that the combination of high CEO incentive compensation and CEO overconfidence is associated with an increase in corporate risk of approximately 6% while the individual effects are for all practical purposes negligible. The results imply that only the combination of high CEO incentive compensation and CEO overconfidence is associated with a significantly elevated level of corporate risk. Research limitations/implications – The findings are based on S&P 1500 non-financial firms in the period 2007-2016. Practical implications - The findings have important implications in terms of CEO selection and compensation. Originality – This study provides empirical evidence on the importance of the dual presence of high CEO incentive compensation and CEO overconfidence for corporate risk. Previous literature has primarily investigated these phenomena in isolation.