Generalist CEOs Research Articles

The Impact of Knowledge Capital and Organization Capital on Stock Performance during Economic Crises: The Moderating Role of a Generalist CEO

This study examines the relationship between intangible capital (IC) and stock performance during the two recent crisis periods, the GFC and COVID-19. By categorizing IC into Knowledge Capital (KC) and Organizational Capital (OC), we analyze the impact of each capital on the crisis return in the manufacturing sector. The results show that a greater KC and OC are significantly associated with higher crisis returns during both periods. In addition, we find evidence that generalist CEOs strengthen this relationship while specialist CEOs do not. Within firms led by a generalist CEO, the CEO’s tenure positively moderates the association between each factor of intangible capital and crisis period returns. This study emphasizes the pivotal role of KC and OC as a protective buffer against external shocks, particularly when the market pays more attention to corporate sustainability.

Generalist CEOs and the readability of the 10-K report

In this paper, we investigate the association between the general managerial ability of CEOs and the readability of 10-K reports. We find that the readability of 10-K reports is lower for firms managed by CEOs with general managerial ability. Our result is robust to change analysis, an alternate readability measure, various fixed effects, an instrumental variable approach, a propensity score approach, and an entropy balancing approach. Our additional analysis reveals that general managerial ability is negatively associated with the readability of management discussion and analysis (MD&A). Moreover, the disclosure tone of 10-K reports and MD&A is conservative when firms are managed by generalist CEOs. Our findings also reveal that CEO tenure moderates the positive association between the general ability index and Gunning Fog index of 10-K reports. Finally, we find that high investment level and misstatement strengthen the association between the general ability index and the readability of 10-K reports, thus supporting the obfuscation hypothesis. We, therefore, conclude that firms incur costs in the form of lower disclosure quality when they opt for a generalist CEO.

Count on subordinate executives: Internal governance and innovation

We investigate the relationship between internal governance and firms' innovation. We hypothesize that internal governance stemming from the difference in expected employment horizons between a CEO and her subordinate executives improves a firm's innovation. Using the age difference between a CEO and her subordinate executives as the primary measure of internal governance, we find a strong positive relationship between internal governance and firms' innovation output, and scientific and economic values. We show that the positive relation is causal and robust based on empirical tests including exogenous variation in internal governance resulting from non-forced CEO turnovers. We further show that the relationship between internal governance and innovation is more pronounced when external governance is weaker and when subordinate executives are expected to have more influence on the board. Cross-sectional analysis shows that internal governance spurs innovation in younger firms, firms led by generalist CEOs, and when the likelihood of insider successions is higher.

ESG-Linked Compensation, CEO Skills, and Shareholder Welfare

Abstract Executive compensation is increasingly being linked to ESG outcomes. This paper examines whether ESG targets are consistent with shareholder welfare. Using granular information on compensation contracts of Swedish CEOs, we show that ESG and financial targets are competing. ESG-linked compensation is 5 percentage points more common in well-governed firms and 6.3 percentage points more likely for CEOs with broader skill sets (generalist CEOs). ESG scores of well-governed firms improve when generalist CEOs have ESG-linked pay, but there is no effect on profitability. These results suggest that boards set ESG contracts because shareholders derive utility from ESG in addition to wealth, and ESG may not be produced without these incentives. (JEL M14, G14, D21, L21) Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

The generalist CEO pay premium and CEO risk aversion

AbstractWe investigate whether and how managerial risk aversion influences the structuring of the generalist pay premium. We use three candidate variables for managerial risk aversion: the CEO's equity portfolio vega, decision horizon, and wealth. We find that equity‐based pay differs between generalist CEOs (who have broader experience spanning several industries) and non‐generalist CEOs (who tend to have narrower, specialized industry‐specific experience) based on their risk appetite. Further, how the generalist pay premium is structured depends on the risk aversion measure. Because generalist CEOs tend to be better paid than their counterparts, understanding their risk aversion level will help companies improve the structure of these CEOs’ compensation packages, and ultimately those of all CEOs. When vega is the risk aversion measure, CEOs get compensated for bearing risk. However, generalist CEOs with high vegas suffer a “risk discount” in their compensation. These generalist CEOs are associated with lower cash, equity, and total pay. CEOs with longer decision horizons get more equity and less cash, but this structuring does not extend to the generalist CEOs. Finally, wealthier CEOs get more cash and total pay. However, generalist CEOs who are wealthier get less cash pay.

Generalist CEOs and Conditional Conservatism

Generalist CEOs and Conditional Conservatism

CEOs' general managerial skills and corporate risk taking subject to the moderator of CEO tenure

AbstractIn this study, we examine the relation between chief executive officers' (CEOs') general managerial skills and firms' risk‐taking behaviour. We find that generalist CEOs are associated with significantly higher firm risk, with the association decreasing significantly with CEO tenure. We propose the following managerial skills transformation explanation: the longer a CEO stays with a firm, the less general and more firm specific the CEO's skills and knowledge become; therefore, any effect of the CEO's general managerial skills only appears in the early years of tenure.

Generalist CEOs and Stock Price Crash Risk

Generalist CEOs and Stock Price Crash Risk

Corporate governance and generalist CEOs: evidence from board size

PurposeThe purpose of this study is to contribute to the debate in the literature about generalist CEOs by exploring the effect of board governance on CEO general managerial ability, focusing on one of the most crucial aspects of the board of directors, board size. Prior research shows that smaller boards constitute a more effective governance mechanism and therefore are expected to reduce agency costs.Design/methodology/approachThe authors estimate the effect of board size on CEO general managerial ability, using a fixed-effects regression analysis, propensity score matching, as well as an instrumental-variable analysis. These techniques mitigate endogeneity greatly and make the results much more likely to show causality.FindingsThe results show that firms with smaller board size are more likely to hire generalist CEOs. Specifically, a decline in board size by one standard deviation raises CEO general managerial ability by 15.62%. A lack of diverse experiences in a small board with fewer directors makes it more necessary to hire a CEO with a broad range of professional experiences. Furthermore, the agency costs associated with generalist CEOs are greatly diminished in firms with a smaller board. Hence, firms with a smaller board are more inclined to hire generalist CEOs.Originality/valueAlthough prior research has explored the effects of board size on various corporate outcomes, strategies and policies, this study is the first to investigate the effect of board size on CEO general managerial ability. This study contributes to the literature both in corporate governance and on CEO general managerial ability.

Do Generalist CEOs Magnify Boardroom Backscratching?

Do Generalist CEOs Magnify Boardroom Backscratching?

Generalist CEOs and Audit Pricing

SUMMARY We analyze the consequences of a firm hiring a generalist CEO in terms of the audit fees paid by the firm. We find that audit fees of clients with generalist CEOs are higher than those of clients with specialist CEOs. This relation is robust to considering managerial ability, other CEO characteristics, various fixed effects, instrumental variables, and change analyses. We further show that fee differences are larger for firms with weaker monitoring and higher corporate litigation risks. Through path analysis, we find that both client business risk and misreporting risk contribute to the fee difference. Finally, we find that auditors are more likely to issue going-concern opinions to clients with generalist CEOs. Our study should be of interest to auditing standard setters who link management operating styles to audit risk. We shed light on how management operating styles associated with the CEOs' general or specialized skills affect audit pricing. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: M41; M42.

CEO overconfidence and the probability of corporate failure: evidence from the United Kingdom

This paper investigates the impact of CEO overconfidence on the probability of corporate bankruptcy. Using a large dataset of UK firms, we find that firms with overconfident CEOs face a greater risk of failure. The presence of overconfident CEOs leads to a higher risk of bankruptcy in innovative environments, while the impact is insignificant in non-innovative environments. Moreover, overconfident CEOs can increase the bankruptcy risk of firms with less conservative accounting. We find that banks, as major creditors, seem to play an important role in constraining CEO overconfidence, and hence in reducing the likelihood of bankruptcy. Finally, the impact of overconfidence on the probability of bankruptcy is stronger in firms with generalist CEOs than specialist CEOs.

Generalist CEOs and Audit Pricing

We analyze the consequences of a firm hiring a generalist CEO in terms of the audit fees paid by the firm. We find that audit fees of clients with generalist CEOs are higher than those of clients with specialist CEOs. This relation is robust to considering managerial ability, other CEO characteristics, various fixed effects, instrumental variables, and change analyses. We further show that fee differences are larger for firms with weaker monitoring and higher corporate litigation risks. Through path analysis, we find that both client business risk and misreporting risk contribute to the fee difference. Finally, we find that auditors are more likely to issue going-concern opinions to clients with generalist CEOs. Our study should be of interest to auditing standard setters who link management operating styles to audit risk. We shed light on how management operating styles associated with the CEOs’ general or specialized skills affect audit pricing.

Generalist CEOs and Credit Ratings

A recent trend is that firms prefer to hire generalist CEOs with transferable skills (across firms or industries) over hiring specialist CEOs, but the consequences of this trend are unclear. In this study, we examine whether credit rating agencies consider a CEO’s general skills as a credit risk factor when assessing an entity’s overall creditworthiness. We predict and find that generalist CEOs are associated with lower credit ratings, suggesting that the presence of generalist CEOs is a significant credit rating factor. We also find that generalist CEOs are likely to take on more risks, which leads to more volatile performance ex post, and our path analyses confirm default risks is a significant mediator between credit ratings and CEOs’ general skills. Our results hold in the presence of additional controls (e.g., CEO characteristics and corporate governance), when applying different fixed-effect models and different matching methods, and for a subsample with forced CEO turnover. We also find that the negative relationship is attenuated for R&D-intensive firms and firms in competitive industries. Last, we provide evidence that firms with generalist CEOs face higher borrowing costs, such as bond yields and syndicated loan spreads. Overall, our results contribute to a growing literature on the costs and benefits of hiring generalist CEOs, by providing a full picture of why hiring a generalist CEO may benefit shareholders but also cause misalignments with bondholders’ interests.

Industry Experiences of Board, CEO, and Acquisition Performance

This study examines the collective impact of expert boards and CEOs on acquisition performance, providing new insight into the CEO–board relationship. Acquiring firms with expert boards earns an additional 1.16 percentage points (3.91 percentage points) when the CEOs are new to the target industry (also experts) compared to the firms with “nonexperienced” boards (expert boards alone). Robust to endogeneity checks, our evidence supports the “vigilant-advisor”, “resource-provisioning”, and “shared-experience” hypotheses that take three distinct views of the CEO–board relationship. Generalist CEOs and public targets intensify the shared-experience effect, whereas less powerful CEOs and private targets intensify the resource-provisioning effect. Experienced directors improve the quality of acquisitions by assisting acquirers to avoid large losses, identify targets with higher synergies, and negotiate better deals.

The Curse of Extremes: Generalist Career Experience and CEO Initial Compensation

Studies argue that generalist CEOs are more valued by the market for executive labor and receive higher initial compensation. Challenging this prevailing assumption, we acknowledge the drawbacks of extensive career mobility and predict an inverted U-shape relationship between CEO generalist career experience and CEO initial compensation. Integrating the generalism and specialization views of human capital, we postulate that at an initial level, the acquisition of experience breadth from different firms and industries enables CEOs to broaden their knowledge base, obtain a variety of skills, and thus increase their labor market value and initial compensation. After a threshold, however, the accumulation of extensive levels of career generalism through frequent job hopping across firm and industry contexts gradually causes a lack of experience depth and insufficient career specialization, thereby triggering lower CEO market value and initial pay. Data from 197 CEO appointments in large, publicly traded firms support our predictions. Our results also show that the observed inverted U-shape relationship varies with factors nested at different layers of context, highlighting the contingent nature of this area of research.

Chalk It Up to Experience: CEO General Ability and Earnings Management

We provide evidence that firms managed by CEOs with high general ability, or broad experience in their background, are more likely to utilize discretionary accruals and also realize more earnings restatements than CEOs with focused experience. This appears to be a result of transitions to CEOs with high general ability and not simply a selection of these CEOs by firms that utilize discretionary accruals extensively. Cross-sectional variation suggests that the mechanism underlying the increased use of discretionary accruals is generalist CEOs’ increased willingness to bear the risk inherent in managing earnings given their enhanced tolerance for failure stemming from outside career options.

Generalist versus Specialist CEOs: The Impact of CEO Expertise on the Design of Compensation Contract

Generalist CEOs receive higher pay than specialist CEOs. We examine the implications of CEO expertise for the structure of executive compensation. We follow contract theory and predict that information asymmetry induces generalist CEOs to overstate their ability to a larger extent when contracting with shareholders. Boards of directors take this into account by designing compensation contracts that link their pay more closely to firm performance. Our empirical results support this prediction, and the link is more pronounced when generalist CEOs are less known in the executive labor market or are hired externally. The results hold after we control for a battery of factors that potentially affect incentive pay, including firm characteristics and CEO ability. Overall, our results support the optimal contracting perspective of executive compensation and highlight the importance of CEO expertise generality in resolving adverse selection during the contracting process.

Industry Experience of Board CEO, and Acquisition Performance

This study examines the collective impact of expert boards and CEOs on acquisition performance, providing new insight into the CEO-board relationship. Acquiring firms with expert boards earn an additional 1.16 percentage points when their CEOs are new to the target industry compared to firms with “non-experienced” boards. However, compared to firms with expert boards alone, acquiring firms with expert boards earn an additional 3.91 percentage points when their CEOs are also experts in the target industry. Robust to endogeneity checks, our evidence supports the vigilant-advisor, resource provisioning, and “shared experience” hypotheses that take three distinct views of the CEO-board relationship. Generalist CEOs and public targets intensify the shared experience effect, whereas less powerful CEOs and private targets intensify the resource provisioning effect. Finally, experienced directors improve the quality of acquisitions by assisting acquirers to avoid large losses, identify targets with higher synergies, and negotiate better deals.

When more pays less: CEO career variety and CEO initial compensation

Studies show that generalist CEOs with high levels of career variety receive higher compensation. Challenging this prevailing assumption, we acknowledge the drawbacks of extensive levels of CEO car...