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Founder‐CEO status and firm performance: an exploratory study of alternative perspectives

Founder‐CEO status and firm performance: an exploratory study of alternative perspectives Purpose – The purpose of this paper is to empirically examine the relationship between founder‐chief executive officers (CEOs) and firm performance. Specifically, the paper explores two opposing arguments on the performance implications of founder‐CEO leadership. The first theoretical perspective argues that founder‐CEOs positively contribute to firm performance since they bring passion, vision, and external legitimacy to the organization. The contrary resource‐based perspective, argues that while founder‐CEOs help in the early years of the firm, they become less effective as the firm evolves into a complex bureaucracy since they lack the necessary managerial skills. Design/methodology/approach – In order to test these perspectives, the paper develops a matched sample of 82 US manufacturing firms and compared their performance using both accounting and market‐based measures. Independent sample t ‐tests and analysis of variance were used to empirically test the opposing predictions. Data were obtained from the Mergent Online database as well as official proxy filings of sample firms. Findings – The results of the data analysis indicate that there is a statistically significant performance difference between founder‐led and non‐founder led firms. Such performance difference is especially evident when the paper focusses on accounting‐based firm performance measures such as return on assets and return on investment. Surprisingly, founder‐led firms performed worse than those led by non‐founder CEOs. The follow‐up analysis indicates a significant difference in age and size among sample firms led by founders and non‐founders such that founder‐led firms tend to be younger and smaller in size. Research limitations/implications – Unlike other studies in the literature that found a strong positive impact of founder‐CEOs, the findings of the study provided empirical support for the resource‐based explanation of founder‐CEO impact on firm performance. Specifically, the findings reported here contribute to understanding the role of founder‐CEOs in the context of executive succession, strategy selection as well as organizational evolution. Originality/value – This study makes original contribution to the on‐going research on strategic leadership by exploring the performance effect of founder‐CEOs and the corresponding alternative theoretical explanations. In addition, the inclusion of both accounting and market‐based (Tobin's Q ) dependent variables provide a broader measure of firm financial performance. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Strategy and Management Emerald Publishing

Founder‐CEO status and firm performance: an exploratory study of alternative perspectives

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Publisher
Emerald Publishing
Copyright
Copyright © 2013 Emerald Group Publishing Limited. All rights reserved.
ISSN
1755-425X
DOI
10.1108/JSMA-03-2013-0014
Publisher site
See Article on Publisher Site

Abstract

Purpose – The purpose of this paper is to empirically examine the relationship between founder‐chief executive officers (CEOs) and firm performance. Specifically, the paper explores two opposing arguments on the performance implications of founder‐CEO leadership. The first theoretical perspective argues that founder‐CEOs positively contribute to firm performance since they bring passion, vision, and external legitimacy to the organization. The contrary resource‐based perspective, argues that while founder‐CEOs help in the early years of the firm, they become less effective as the firm evolves into a complex bureaucracy since they lack the necessary managerial skills. Design/methodology/approach – In order to test these perspectives, the paper develops a matched sample of 82 US manufacturing firms and compared their performance using both accounting and market‐based measures. Independent sample t ‐tests and analysis of variance were used to empirically test the opposing predictions. Data were obtained from the Mergent Online database as well as official proxy filings of sample firms. Findings – The results of the data analysis indicate that there is a statistically significant performance difference between founder‐led and non‐founder led firms. Such performance difference is especially evident when the paper focusses on accounting‐based firm performance measures such as return on assets and return on investment. Surprisingly, founder‐led firms performed worse than those led by non‐founder CEOs. The follow‐up analysis indicates a significant difference in age and size among sample firms led by founders and non‐founders such that founder‐led firms tend to be younger and smaller in size. Research limitations/implications – Unlike other studies in the literature that found a strong positive impact of founder‐CEOs, the findings of the study provided empirical support for the resource‐based explanation of founder‐CEO impact on firm performance. Specifically, the findings reported here contribute to understanding the role of founder‐CEOs in the context of executive succession, strategy selection as well as organizational evolution. Originality/value – This study makes original contribution to the on‐going research on strategic leadership by exploring the performance effect of founder‐CEOs and the corresponding alternative theoretical explanations. In addition, the inclusion of both accounting and market‐based (Tobin's Q ) dependent variables provide a broader measure of firm financial performance.

Journal

Journal of Strategy and ManagementEmerald Publishing

Published: Oct 25, 2013

Keywords: CEO tenure; Firm performance; Founder‐CEOs; Stewardship theory; Strategic leadership

References