Non-founder CEOs Research Articles

Founder CEOs and ESG

We examine the relation between a firm's environmental, social, and governance (ESG) performance and its CEO's founder status, an important but previously unexplored leadership attribute in this context. We find that founder-CEO-led firms exhibit superior ESG performance. We further document that founder CEOs impact firm ESG behavior through a reputation channel. Specifically, founder CEOs invest significantly more in ESG activities in highly visible firms than non-founder CEOs. Founder CEOs are also particularly mindful of their environmental reputation. On the other hand, in low visibility firms, founder and non-founder CEOs exhibit little differences in the overall ESG activities. The results are robust to controlling for various firm, CEO, and industry characteristics. Using CEO transitions from founder to non-founder status and vice versa, we conduct propensity score matching (PSM) differences-in-differences (DiD) robustness checks. Our baseline results continue to hold.

CEO discretionary power, unconstrained stock ownership, and stock trading: Theory and evidence

This paper examines CEOs' holding and trading of unconstrained firm stock they own, i.e., vested and sellable firm shares. I first develop a theoretical model of why CEOs hold sellable shares in their own firm when doing so is riskier than holding a more diversified portfolio. In this model, greater stock ownership allows the CEO to exercise discretionary power more easily and extract rents from the company. My model predicts that CEOs desire to hold more firm stock and therefore are less likely to sell stock when they have greater discretionary power. This empirical prediction is supported by tests that measure discretionary power based on the principal component analysis of three proxies. Using stock trading data in S&P 1500 firms, I find that discretionary power is negatively (positively) associated with the CEO's stock sale (purchase). The results are weaker in industries where rent extraction is more difficult. Further, results hold for both founder and non-founder CEOs, and are robust to a battery of sensitivity tests. Overall, this study provides new insights concerning CEOs' decisions to own their companies' stock.

How Corporate Social Responsibility Affects Firm Performance: The Inverted-U Shape Contingent on Founder CEO

Despite abundant research on the relationship between CSR and firm performance, prior research generated highly inconsistent findings. No consensus has been achieved on the relationship between CSR and firm performance. The objective of this research is to examine how the relationship between CSR and firm performance is contingent on founders’ management roles, especially in the situation of the founder as CEO, which will provide insights into the inconsistent impacts of CSR. Based on panel data analysis, we empirically test the nonlinear relationship between corporate social responsibility (CSR) and firm performance for China’s Growth Enterprise Market (GEM) listed companies. We further explore how this relationship differs under two types of CEOs: founder CEOs and non-founder CEOs. Our econometric analysis produces two major findings. First, there is an inverted U-shaped relationship between CSR and firm performance. Second, the presence of founder CEO weakens the relationship between CSR and firm performance, making the inverted U-shaped curve flatter. This research makes both novel theoretical and practical contributions to entrepreneurship and organization research by providing an enriched understanding of the relationship between CSR and firm performance. It integrates multiple theories to create a framework within which the contingent impacts of CSR can be holistically understood. It also helps managers to realize the nonlinear economic consequences of CSR activities and the different regulatory effects of founder management.

Internationalization-Performance Relationship of Family Firms: The Moderating Role of Familyness

Despite the growth in family firm (FF) research we hardly know how internationalization (I) impacts performance (P) of FFs, and how the familyness within FFs shape their IP relationship. Drawing on IB and FF literatures, we theorize in this study how two important sources of heterogeneity—extent of family ownership and involvement of CEO (family versus professional; founder versus non-founder)—moderate FFs’ IP relationship. Our empirical analysis of data from India suggests that FFs’ IP relationship is negative, but the extent of family ownership and involvement of professional CEO and founder CEO positively influences this relationship. Our results also demonstrate that involvement of family CEO and non-founder CEO casts a negative moderating influence on FFs’ IP relationship. Our results further provide evidence that FFs’ IP relationship is positively moderated when family CEOs possess international experience. Our study contributes to the IB and FF literature in multiple ways.

Lone founders, family founders, and corporate social responsibility

This study explores the relationship between founder CEOs and corporate social responsibility (CSR). We use 1093 firm-year observations and CSR scores (Environment, Business Behavior, Community Involvement, etc.) from Vigeo-Eiris, the leading European social rating agency. As lone and family founders develop differentiated and statistically significant behaviors toward CSR, our results suggest that founders’ social context is important. More precisely, we provide evidence that lone founders are less likely to invest in external CSR than are other CEOs. In contrast, their behavior toward internal CSR is not statistically different from that of non-founder CEOs. Conversely, family founders are more likely to invest in internal CSR activities. In addition, our results are strongly moderated by CEOs’ age, indicating non-homogenous behavior toward CSR over time and suggesting a tendency to instrumentalize their CSR investments to address personal and family agendas.

Moderating Effects of Founders’ Role on the Influence of Internationalization on IPO Performance of Listed Companies in Thailand

Previous research suggests that internationalization affects initial public offering (IPO) performance in the short term, but it less is known about the founders’ role in the relationship between internationalization and IPO performance. The objectives of this study were to investigate moderating effects of the founders’ role on the impact of internationalization on IPO performance of newly listed companies. The samples included 80 international firms listed in Thailand stock markets from 2013 to 2020. Multiple regression analysis was employed to test the effects of internationalization on IPO performance, and the PROCESS macro was applied to test the moderating effects. Founder CEO as a proxy of a founders’ role was a moderator variable where internationalization was a predictor variable and IPO underpricing, a proxy of IPO performance, was the outcome variable. The results revealed that internationalization demonstrated no statistically significant effect on IPO underpricing. A non-founder CEO had a moderating effect on the influence of internationalization on IPO underpricing, whereas a founder CEO revealed no moderating effect. Specifically, internationalization had a negative effect on IPO underpricing once an international firm had a non-founder CEO. A decrease in IPO underpricing of international firm is clearly explained by the results of this study.

Founder CEOs, business groups and firm value: evidence from an emerging market

PurposeThe impact of founder CEOs on firm value continues to be debated in the finance literature. While earlier studies suggest that founding family ownership and founding CEO structure create less value than public ownership, later studies provide contradicting evidence. This study examines how founder CEOs affect firm value in the business group context while controlling for firm-specific variables and various CEO characteristics.Design/methodology/approachThe authors use a sample of publicly listed Indian firms from 2010 to 2015 with 997 firm-year data observations. While 306 of these are in business groups, the remaining 691 are in a nonbusiness group. The authors also divide the sample into various sector subgroups, including materials (170), industrials (198), consumer (422) and others (198). They use two different models, including the fixed effect model (FEM) and pooled generalized method of moments (GMM) model to run regressions.FindingsThe authors find that firms with founder CEOs have lower firm value than those with nonfounder CEOs. These results show the importance of the role of founder CEOs in the Indian business groups. The authors further find a positive relationship between founder CEO and business group interaction variable, showing that an increase in founder CEO (or business group) increases the significance effect of business group (founder CEO) on firm performance. After separating the sample business and nonbusiness groups, the relationship between founder CEOs and firm value in both groups remains negative. Using various firm-specific control variables, the authors find that highly leveraged and smaller firms experience lower Tobin's Q. In contrast, firms with more investment in research and development perform better. Among CEO characteristics, the authors find that firms with highly educated CEOs do not perform well, while firms with older CEOs do better. Finally, they find that CEO tenure and duality are associated with lower firm performance.Originality/valueThis study adds value by providing evidence on the founder CEOs and firm performance in business groups from a fast-developing emerging market.

Does founding team composition influence external investment? The role of founding team prior experience and founder CEO

Entrepreneurship research examines the nature and diversity of founding teams’ prior experience to understand its influence on the new ventures’ growth, which is often measured in terms of the latter’s capacity to raise capital (i.e., external investment). Founding teams operating in the high-tech industry need a diverse set of experiences—entrepreneurial, managerial, and industry (technological domain)-specific—to craft a venture strategy. However, the conditions in which these experiences lead to an external investment remain unclear. We address this issue by arguing that these types of experience have different effects on the efforts of Founder CEOs and Non-Founder CEOs to influence external investment. We tested this theoretical argument using a sample of 60 new young high-technology ventures, and the results point to a positive association between founding teams’ prior managerial and industry (technological domain)-specific experience and the obtainment of external investment. The relationship between Founder CEO and external investment was negative. The interactive influence of a team’s prior experience and the CEO’s role on external investment demonstrates the former’s crucial effect on venture growth, particularly regarding new ventures managed by Founder CEOs and teams with prior managerial experience.

Non-founder CEOs, R&D investment and output

Purpose The purpose of this study is to investigate the impact of non-founder CEO succession on firms’ research and development (R&D) decision, and further explore its mechanism and economic consequences. Design/methodology/approach Using founders’ personal-level information of entrepreneurial firms in the Chinese growth enterprise market from 2009 to 2015, the authors empirically investigate whether firms can be motivated to launch more R&D activities as the result of switching to non-founder CEOs. The author’s further test the impact of non-founder CEOs on R&D output to distinguish their motivation. Moreover, the authors use stepwise regression to explore the mechanism and possible channels. Findings The authors find that R&D investment significantly increases in firms with non-founder CEOs and the R&D output that comes in the form of patent exhibits an upward trending in numbers, too, ruling out non-founder CEOs’ incentive to chase private benefits. Specifically, the authors find that non-founder CEOs can promote R&D investment through their more professional human capital and better internal control. The authors also show mitigating effects under different circumstances on the relationship between non-founder CEOs and R&D investment. Practical implications This study helps the authors to understand the impact of non-founder CEO succession on R&D investment in emerging markets. It also indicates that human capital of non-founder CEOs is critical in driving firms’ innovation, proposing policy suggestions to improve formal intermediary labor market of professional CEOs. Originality/value This study provides elaborate theoretical analysis and empirical tests on the mechanism and economic consequences of (non-)founders’ impact on R&D activities.

New director selection during growth in family-influenced and lone founder firms: An identity fit perspective

Drawing on the identity fit perspective in organizational identity research, we investigate changes in new director selection patterns for family-influenced (i.e., family identity) and lone founder (i.e., entrepreneurial identity) firms experiencing growth. We collect over 7000 observations of new director placements from 2001 to 2014 and find that both family-influenced and lone founder firms tend to decrease the selection of new directors with similar firm-type board experience as firm size grows and firm performance deviates from that of similar firms. Lone founder firms also decrease the extent to which they hire new directors with previous board experience in lone founder firms following the appointment of a nonfounder CEO. We conclude that while family-influenced firms often use new director selection decisions to maintain the fit between family and firm identity, firm growth creates challenging conditions that threaten family-firm identity maintenance.

Crisis Conditions and Performance of IPO Firms: Impact of Founder-CEOs and Foreign Listings

IntroductionPeriodically, there exists a publicly-traded company that has the good fortune to have an entrepreneurial, visionary CEO that generates long-lasting, organic growth (Joel Shulman, Forbes, 2012).ENTREPRENEURS WHO ARE SUCCESSFUL IN growing their firm and securing financing for making an initial public offering (IPO) face the likelihood that they will be replaced by a professional manager (Wasserman, 2003). The literature shows that founders are replaced due to particular firm characteristics such as exceptionally high or low firm growth, the founder's functional background, and ownership structure (Boeker and Karichalil, 2002). Yet, entrepreneurs who are not replaced and become founder-CEOs of a publicly traded company tend to perform better than non-founders in the IPO process (Gao and Bain, 2011; He, 2008; Mousa and Wales, 2012; Nelson, 2003). Although founders do perform better in IPOs, little is known about how market conditions play a role in the relationship between founder and non-founder-CEO performance in IPOs.Market conditions have been indicated to affect multiple aspects of IPOs such as the number of IPOs being made (Pastor and Veronesi, 2005). Furthermore, investor sentiment changes with environmental conditions (Barberis et al., 1998). Investors are subject to representativeness, generalizing about a person or phenomenon with minimal information (Busenitz and Barney, 1997), as well as periods of conservatism and overconfidence (Barberis et al., 1998) depending on environmental conditions. It is reasonable to believe that changing market conditions and investor sentiment influence how founder-CEOs are received. Therefore, this paper seeks to address how varying environmental conditions affect IPO firm performance for founder and non-founder-CEOs.Investors, both individual and institutional, receive information about IPOs from various sources including financial analysts, investment banks (He, 2007), the media (Pollock and Rindova, 2003), prospectuses, company-released information, and other outlets. All information received forms a set of narratives in investors' minds about an IPO company. Narratives that we experience are how we make sense of and gain meaning (Weick and Browning, 1986) from our environment. Therefore, the narrative paradigm that considers how people deduce reality from a series of stories (Stutts and Barker, 1999) can help explain the reasons why investor sentiment changes towards founder and non-founder CEOs of IPO firms in different environmental conditions.Culture and origin also influence how narratives are formed and perceived. Therefore, narratives across cultures need to be considered in the relationship between founder-CEOs and IPO performance. Most often, researchers remove foreign IPOs from their studies and examine one particular market's (usually the United States) domestic IPOs (i.e. Gao and Bain, 2011; Mousa and Wales, 2012; Nelson, 2003). It is important to consider both domestic and foreign IPOs together because foreign listings are prevalent (Doidge et al., 2004) and increasing around the world. How environmental conditions play a role in the reception of foreign stocks with founder and non-founder CEOs also needs to be better understood so that management can time and strategize their public offering accordingly.To analyze different environmental conditions, two-year increments surrounding and during the 2007-2008 financial crisis will be examined. Precrisis, crisis, and two post-crisis periods will also be reviewed. Analyzing IPO performance in distinct market stages will indicate which characteristics determine success in each stage and how certain factors become more or less important over time.The motivations for conducting a study about founder-CEOs in domestic and foreign firms before, during, and after the most recent stock market crisis are both academic and practical. From an academic standpoint, a growing literature stream is interested in understanding how management influences the IPO process. …

Portrayal and Perception of Founder CEOs Versus Nonfounder CEOs In Initial Public Offerings

This paper explores how founder and nonfounder-CEOs’ narratives are portrayed differently in business media. Media provides complementary information for IPO investors and can impact investors’ per...

Career Concerns and Management Earnings Guidance

AbstractThis study provides evidence that managers' career concerns affect their earnings guidance decisions. We hypothesize that CEOs who are relatively more concerned about assessments of their abilities have stronger incentives to guide the market expectations of earnings downwards to increase the likelihood of meeting or beating the expectations. Consistent with this hypothesis, we find that (i) short‐tenured CEOs, CEOs promoted from inside the firm, and nonfounder CEOs are more likely to provide downward earnings guidance when they have bad news, and (ii) their downward guidance tends to be more conservative. In response, analysts revise earnings forecasts less for the downward guidance provided by more career‐concerned CEOs. This indicates that analysts rationally incorporate these CEOs' stronger incentives to be conservative in their earnings guidance. Consequently, we find that CEOs with greater career concerns are not more likely to beat the market expectations, even when they provide more conservative downward guidance.

Should Infosys Buy Back its Shares

This case focuses on the cash holding, capital structure (negative debt) and management of earnings and dividend decisions in a fast growing and profitable IT company. The case is set in August 2014 when the first non-founder CEO takes over charge of the bellwether Indian IT Company, Infosys Ltd. On the occasion one of the suggestions new CEO receives from the former CFOs and co founders is to announce share buy back immediately. They also raise concern over the abrupt change in the leadership with non-founders taking over and demand share buyback to restore the faith of shareowners. The case provides interesting setting to discuss why some companies hold lot of cash, which might lower the returns on equity holders. Thus rises a vital question, what should the company do to shell out excess cash? The former CFO’s who in the past as managers of Infosys defended excessive cash holdings as prudent business sense, now as shareholder put forward strong case of buy back to retire excessive cash holdings. Thus this case provides a rare setting to examine agency issue in context of the capital structure, cash holding and dividend decisions. The case provides ample opportunity to discuss theory and practice of cash holdings and dividend policy from Agency theory lance.

CEO resistance: The role of BOD dependence/independence and CEO profile

The relationship between boards of directors and CEOs has been at the center of attention in the literature on Corporate Governance. However, little has been done to identify sources of friction and possible outcomes in this relationship. In this paper, drawing on the literature on Agency/Stewardship Theory, Upper Echelons perspective, and Corporate Governance, I have addressed this gap. To do so, this paper recognizes the distinction between founder and non-founder CEOs and dependent and independent boards of directors. I have hypothesized that founder CEOs will demonstrate higher resistance than non-founder CEOs in the presence of independent boards of directors and lower than non-founder CEOs in the presence of dependent boards of directors to takeover proposals.

Radical or Incremental Innovations

We study the impact retirement has on how CEOs spend R&D funds. Consistent with retiring CEOs’ short horizons and growing conservatism, we find evidence that CEOs tend to prefer incremental innovations as they approach retirement. Using patent data to measure firms’ innovation outputs, we find that firms receive fewer patent grants for applications filed toward the end of CEO tenures, and these patent grants receive fewer subsequent citations. Moreover, we find that large amounts of vested, in-the-money option holdings exacerbate retiring CEOs’ preference for incremental innovations, and founder CEOs pursue incremental innovations to a greater extent than non-founder CEOs close to retirement. However, a normal “relay process” of managerial succession and higher stock ownership by independent directors mitigate retiring CEOs’ preference for incremental innovations. We find no evidence that the documented incremental innovations before retirement are driven by either poor firm performance or a general shift from innovation to stability as CEO tenures increase or as CEOs age. Overall, the study identifies a new type of myopic behavior related to CEO retirement and highlights the importance of looking beyond R&D spending in future studies on the managerial investment myopia.

Crisis Conditions and IPO Firms: Founder CEO Effect and Foreign Listings

This paper investigates how different environmental conditions prior to, during, and after the 2007-2008 financial crisis interact with firm-level variables of founder/ non-founder CEOs and U.S. or foreign firms for IPO firms to determine market performance. 562 IPOs made in the U.S. between 2005 and 2010 were analyzed. Prior to the crisis, having a founder CEO was most important, during the crisis being a foreign company and having a founder CEO is the most important, and immediately following the crisis neither founder status or foreign status are influential. Two years removed from the crisis being a U.S. company had the most influence on change in market performance. Implications are discussed.

Governance, product market competition and cash management in IPO firms

This study evaluates the link between CEO governance heterogeneity, power structure of the firm, and product market competition on various facets of post-IPO cash policy. Our results suggest that post-IPO cash holdings as well as marginal value of cash reserves are higher under a founder CEO governance regime relative to non-founder CEOs. Concentrating board power in the hands of founder CEOs however, reduces their ability to maintain higher post-IPO cash reserves. Our results also suggest that product market competition influences both the level and marginal value of cash reserves in the hands of founder CEOs. Further, we find that stronger internal governance reduces the tendency of IPO firms to deploy excess cash reserves to fund internal investments in excess of industry rivals. Finally, our results suggest that excess cash reserves in competitive industry environments lead to superior post-IPO operating performance.

Determinants Of CEO Cash Compensation In Small, Young, Fast Growing Firms

This study examines factors related to CEO cash compensation for a sample of publicly-held firms that are small, young, and growing. Our key finding is that founder CEOs accept lower cash compensation than non-founder CEOs. This evidence suggests that, for small, young, and growing firms, founder CEOs do not extract unusually large private benefits that harm outside shareholders. Weaker evidence suggests: firms with greater growth opportunities pay higher cash compensation to CEOs; firms with greater outsider representation on the board pay lower cash compensation to CEOs; and firms with greater inside director share ownership pay higher cash compensation to CEOs.

Corporate Governance When Founders are Directors

We examine CEO compensation, CEO retention policies, and M&A decisions in firms where founders serve as a director with a non-founder CEO (founder-director firms). We find that founder-director firms offer a different mix of incentives to their CEOs than other firms. Pay for performance sensitivity for non-founder CEOs in founder-director firms is higher and the level of pay is lower than that of other CEOs. CEO turnover sensitivity to firm performance is also significantly higher in founder-director firms compared to non-founder firms. Overall, the evidence suggests that boards with founder-directors provide more high powered incentives in the form of pay and retention policies than the average U.S. board. Stock returns around M&A announcements and board attendance are also higher in founder-director firms compared to non-founder firms.