Please rotate your device to landscape mode to view the charts.

CEO Behavior and Firm Performance

Journal: Journal of Political Economy

Date: 20200401

Author: Bandiera, Oriana; Prat, Andrea; Hansen, Stephen; Sadun, Raffaella

Abstract:
We develop a new method to measure CEO behavior in large samples via a survey that collects high-frequency, high-dimensional diary data and a machine learning algorithm that estimates behavioral types. Applying this method to 1,114 CEOs in six countries reveals two types: "leaders," who do multifunction, high-level meetings, and "managers," who do individual meetings with core functions. Firms that hire leaders perform better, and it takes three years for a new CEO to make a difference. Structural estimates indicate that productivity differentials are due to mismatches rather than to leaders being better for all firms.

Link: Google Scholar

Key Findings

CEO Behavioral Types

Analysis of 1,114 CEOs across 6 countries reveals two distinct behavioral types: "Leaders" who focus on multi-function, high-level meetings, and "Managers" who focus on one-to-one meetings with core functions.

Impact on Firm Performance

Firms with leader CEOs are on average more productive, with the difference emerging only after CEO appointment. A one standard deviation increase in the CEO behavior index is associated with a 7% increase in firm productivity.

CEO-Firm Matching

17% of firm-CEO pairs are mismatched, with significantly higher mismatches in emerging economies (36%) versus developed countries (5%), leading to substantial productivity losses.

CEO Time Allocation Patterns

  • CEOs spend 80.3% of their time in meetings, highlighting the highly interactive nature of the role
  • 65.7% of time is spent with internal employees (insiders)
  • Only 10.8% of time involves both insiders and outsiders together

Productivity Impact by Region

  • 35.6% of firms in low/middle income countries have mismatched CEOs
  • Only 5.4% of firms in high-income countries face CEO mismatches
  • This mismatch differential accounts for 13% of the productivity gap between regions

Management Practices and CEO Behavior

  • Stronger correlation between CEO behavior and operational management practices
  • Weaker but positive correlation with people management practices
  • Management practices and CEO behavior independently affect firm performance

Contribution and Implications

  • First large-scale study measuring CEO behavior across multiple countries using detailed time-use data
  • Demonstrates importance of matching CEO types to firm needs for organizational performance
  • Highlights significant efficiency losses from CEO-firm mismatches, especially in developing economies
  • Provides new methodology for measuring and classifying executive behavior at scale

Data Sources

  • Time allocation data drawn from Table B.3 showing raw and estimated time shares across different activities
  • Regional productivity impact visualization based on Table 4 showing estimation results by region
  • Management practices correlation data from Table D.3 showing relationship between CEO behavior index and management scores