CEO Behavior and Firm Performance

[Monirul Islam]

This paper combines a new survey methodology with a machine learning algorithm to measure the behavior of CEOs in large samples. Results show that larger and more complex firms require CEOs with a more coordinative—and less micromanaging—behavior. Inefficiencies in the way CEOs match with firms have important consequences for firm productivity.

AUTHOR ABSTRACT
We measure the behavior of 1,114 CEOs in Brazil, France, Germany, India, UK, and U.S. using a new methodology that combines (i) data on every activity the CEOs undertake during one workweek and (ii) a machine learning algorithm that projects these data onto scalar CEO behavior indices. Low values of the index are associated with plant visits and one-on-one meetings with production or suppliers, while high values correlate with meetings with high-level C-suite executives and several functions together, both from inside and outside the firm. We use these data to study the correlation between CEO behavior and firm performance within the framework of a firm-CEO assignment model. We show results consistent with significant firm-CEO assignment frictions, which appear to be more severe in lower-income regions. The productivity loss generated by inefficient assignment is equal to 13% of the productivity gap between high- and low-income countries in our sample.

Source: https://hbswk.hbs.edu/item/ceo-behavior-and-firm-performance