Generalist CEOs Research Articles

CEO Overconfidence and the Probability of Corporate Failure: Evidence from the UK

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.

The dark side of CEO ability: CEO general managerial skills and cost of equity capital

CEOs with substantial general managerial ability (generalist CEOs) possess a substantial share of organization (human) capital and have different risk-taking incentives than do their counterpart specialist CEOs. Using an index increasing in CEO general managerial skills as a proxy for general managerial ability, we find that investors require higher returns from firms featuring CEOs who have profuse general managerial ability. Furthermore, expected returns are significantly increasing with CEO general managerial ability in firms with high organization capital, that belong to M&A-intensive industries and that have complex operations, high agency problems and high anti-takeover provisions. These findings are consistent with arguments that organization (human) capital has significant expected return implications and that CEOs with higher general managerial skills may lead to higher agency problems, feature different risk-taking incentives and be more costly to retain in times of need.

Dark Side of CEO Ability: CEO General Managerial Skills and Cost of Equity Capital

CEOs with substantial general managerial ability (generalist CEOs) possess a substantial share of organization (human) capital and have different risk-taking incentives than do their counterpart specialist CEOs. Using an index increasing in CEO general managerial skills as a proxy for general managerial ability, we find that investors require higher returns from firms featuring CEOs who have profuse general managerial ability. Furthermore, expected returns are significantly increasing with CEO general managerial ability in firms with high organization capital, that belong to M&A-intensive industries and that have complex operations, high agency problems and high anti-takeover provisions. These findings are consistent with arguments that organization (human) capital has significant expected return implications and that CEOs with higher general managerial skills may lead to higher agency problems, feature different risk-taking incentives and be more costly to retain in times of need.

Generalists versus Specialists: Lifetime Work Experience and CEO Pay

We show that pay is higher for CEOs with general managerial skills gathered during lifetime work experience. We use CEOs’ resumes of S&P 1,500 firms from 1993 through 2007 to construct an index of general skills that are transferable across firms and industries. We estimate an annual pay premium for generalist CEOs — those with an index value above the median — of 19% relative to specialist CEOs, which represents nearly a million dollars per year. This relation is robust to the inclusion of firm- and CEO-level controls, including fixed effects. CEO pay increases the most when firms externally hire a new CEO and switch from a specialist to a generalist CEO. Furthermore, the pay premium is higher when CEOs are hired to perform complex tasks such as restructurings and acquisitions. Our findings provide direct evidence of the increased importance of general managerial skills over firm-specific human capital in the market for CEOs in the last decades.