This paper shows that Chief Executive Officers (CEOs) meaningfully affect firm performance. Using variation in CEO exposure resulting from the numer of days a CEO is hospitalized, we provide estimates of the effect of CEOs on firm policies, holding firm and CEO matches constant. We have four main findings. First, CEOs have an economically and statistically significant effect on profitability, revenue, and investment outcomes. Firms whose CEOs are hospitalized underperform when their chief executives are sick but otherwise exhibit similar performance relative to other firms. Second, we find robust CEO effects for relatively young and highly educated CEOs, and for CEOs in rapidly growing environments, settings where the value of CEOs actions are arguably highest. Third, we show that CEOs are unique: the hospitalization of other senior executives does not have similar effects on performance. Fourth, consistent with the idea that hospitalizations meaningfully affect CEO potential at the firm level, we find that even relatively short hospitalizations lead to significant increases in turnover probabilities.Overall, our findings demonstrate that CEOs are a key determinant of firm performance, and that the value of CEO succession and contingency plans is likely to be substantial.
Bennedsen, Morten, Francisco Perez-Gonzalez, and Daniel Wolfenzon. "Estimating the Value of The Boss: Evidence from CEO Hospitalization Events." Working Paper, Columbia Business School, 2011.
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