Luo Zuo is Assistant Professor of Accounting at Cornell University. This post is based on an article authored by Professor Zuo and Antoinette Schoar, Professor of Entrepreneurship at MIT.
In our article, Does the Market Value CEO Styles?, recently published in the American Economic Review, we study how investors perceive the skill set that different types of CEOs bring into their companies. A growing body of research offers evidence that CEOs and other top executives show large and persistent person-specific heterogeneity in their management styles. Bertrand and Schoar (2003) document that such person-specific styles explain a substantial fraction of the variation in firms’ capital structures, investment decisions and organizational structures. The idea that CEOs greatly differ in their styles is also supported by a number of papers that show substantial changes in a firm’s stock price and accounting performance when its top management changes. For example, Perez-Gonzalez (2006) and Bennedsen, Nielsen, Perez-Gonzalez and Wolfenzon (2007) focus on transitions to family CEOs, and Parrino (1997) focuses on internal versus external successors. Similarly, a large literature suggests that CEOs’ specific traits play a role in their management approach. See, for example, Malmendier and Tate (2008) on CEO overconfidence; Kaplan, Klebanov and Sorensen (2012) on general ability and execution skills; Graham, Harvey and Puri (2013) on optimism and risk aversion; and Benmelech and Frydman (2015) on prior military experience.