a1 Fisher College of Business, Ohio State University, 2100 Neil Avenue, Columbus, OH 43210. [email protected]
Eleven percent of the largest public U.S. firms are headed by the CEO who founded the firm. Founder-CEO firms differ systematically from successor-CEO firms with respect to firm valuation, investment behavior, and stock market performance. Founder-CEO firms invest more in research and development, have higher capital expenditures, and make more focused mergers and acquisitions. An equal-weighted investment strategy that had invested in founder-CEO firms from 1993 to 2002 would have earned a benchmark-adjusted return of 8.3% annually. The excess return is robust; after controlling for a wide variety of firm characteristics, CEO characteristics, and industry affiliation, the abnormal return is still 4.4% annually. The implications of the investment behavior and stock market performance of founder-CEO firms are discussed.
I thank Heitor Almeida, John Core, David Denis, Paul Gompers, Gary Gorton, Jeff Jaffe, Craig MacKinlay, Robert Marquez, Andrew Metrick, Vinay Nair, Juliette Parnet, Krishna Ramaswamy, Patrik Sandås, Günter Strobl, René Stulz, Geoffrey Tate, Ayako Yasuda, Karen Wruck, and seminar participants at Amsterdam University, Dartmouth, ESSEC, Harvard Business School, HEC Lausanne, HEC Montreal, Ohio State University, University of California at Irvine, University of North Carolina at Chapel Hill, and University of Utah for helpful comments and suggestions. Financial support from NSF grant SES-0136791 and from a Wharton research grant is gratefully acknowledged. I thank Nicholas Chang, Jen Dlugosz, Ashton Hawk, Allison Loewenstein, Vanesa del valle Broussard, and Morgen Peck for their excellent research assistance.