Skip to main content
    • Aa
    • Aa

Founder-CEOs, Investment Decisions, and Stock Market Performance

  • Rüdiger Fahlenbrach (a1)

Eleven percent of the largest public U.S. firms are headed by the CEO who founded the firm. Founder-CEO firms differ systematically from successor-CEO firms with respect to firm valuation, investment behavior, and stock market performance. Founder-CEO firms invest more in research and development, have higher capital expenditures, and make more focused mergers and acquisitions. An equal-weighted investment strategy that had invested in founder-CEO firms from 1993 to 2002 would have earned a benchmark-adjusted return of 8.3% annually. The excess return is robust; after controlling for a wide variety of firm characteristics, CEO characteristics, and industry affiliation, the abnormal return is still 4.4% annually. The implications of the investment behavior and stock market performance of founder-CEO firms are discussed.

Linked references
Hide All

This list contains references from the content that can be linked to their source. For a full set of references and notes please see the PDF or HTML where available.

R. B. Adams ; H. Almeida ; and D. Ferreira . “Powerful CEOs and Their Impact on Corporate Performance.” Review of Financial Studies, 18 (2005), 14031432.

R. B. Adams ; H. Almeida ; and D. Ferreira . “Understanding the Relationship between Founder-CEOs and Firm Performance.” Journal of Empirical Finance, 16 (2009), 136150.

Y. Amihud , and B. Lev . “Risk Reduction as Managerial Motive for Conglomerate Mergers.” Bell Journal of Economics, 12 (1981), 605617.

R. C. Anderson ; S. A. Mansi ; and D. M. Reeb . “Founding Family Ownership and the Agency Cost of Debt.” Journal of Financial Economics, 68 (2003), 263285.

R. C. Anderson , and D. M. Reeb . “Founding-Family Ownership and Firm Performance: Evidence from the S&P 500.” Journal of Finance, 58 (2003), 13011328.

G. Andrade , and E. Stafford . “Investigating the Economic Role of Mergers.” Journal of Corporate Finance, 10 (2004), 136.

R. W Banz . “The Relation between Return and Market Value of Common Stocks.” Journal of Financial Economics, 9 (1981), 318.

B. M. Barber , and J. D. Lyon . “Detecting Abnormal Operating Performance: The Empirical Power and Specification of Test Statistics.” Journal of Financial Economics, 41 (1996), 359399.

T. M Begley . “Using Founder Status, Age of the Firm, and Company Growth Rate as the Basis for Distinguishing Entrepreneurs from Managers of Smaller Businesses.” Journal of Business Venturing, 10 (1995), 249263.

T. M. Begley , and D. P. Boyd . “Psychological Characteristics Associated with Performance in Entrepreneurial Firms and Smaller Businesses.” Journal of Business Venturing, 2 (1987), 7993.

M. Bertrand , and S. Mullainathan . “Enjoying the Quiet Life? Corporate Governance and Managerial Preferences.” Journal of Political Economy, 111 (2003), 10431075.

M. Bertrand , and A. Schoar . “Managing with Style: The Effect of Managers on Firm Policies.” Quarterly Journal of Economics, 118 (2003), 11691208.

M. J. Brennan ; T. Chordia ; and A. Subrahmanyam . “Alternative Factor Specifications, Security Characteristics, and the Cross-Section of Expected Stock Returns.” Journal of Financial Economics, 49 (1998), 345373.

S Budner . “Intolerance of Ambiguity as a Personality Variable.” Journal of Personality, 30 (1962), 2950.

M. Burkhart ; F. Panunzi ; and A. Shleifer . “Family Firms.” Journal of Finance, 58 (2003), 21672201.

M Carhart . “On Persistence in Mutual Fund Performance.” Journal of Finance, 52 (1997), 5782.

J. Chevalier , and G. Ellison . “Are Some Mutual Fund Managers Better Than Others? Cross-Sectional Patterns in Behavior and Performance.” Journal of Finance, 54 (1999), 875899.

K. J. M. Cremers , and V. B. Nair . “Governance Mechanisms and Equity Prices.” Journal of Finance, 60 (2005), 28592894.

R Daines . “Does Delaware Law Improve Firm Value?Journal of Financial Economics, 62 (2001), 525558.

E. F. Fama , and K. R. French . “The Cross Section of Expected Stock Returns.” Journal of Finance, 47 (1992), 427466.

E. F. Fama , and K. R. French . “Common Risk Factors in the Returns on Stocks and Bonds.” Journal of Financial Economics, 33 (1993), 356.

E. F. Fama , and K. R. French . “Industry Costs of Equity.” Journal of Financial Economics, 43 (1997), 153194.

E. F. Fama , and M. C. Jensen . “Separation of Ownership and Control.” Journal of Law and Economics, 26 (1983), 301326.

E. F. Fama , and J. D. MacBeth . “Risk, Return, and Equilibrium: Empirical Tests.” Journal of Political Economy, 81 (1973), 607636.

P. A. Gompers ; J. L. Ishii ; and A. Metrick . “Corporate Governance and Equity Prices.” Quarterly Journal of Economics, 118 (2003), 107155.

J. J Heckman . “Dummy Endogenous Variables in a Simultaneous Equations System.” Econometrica, 46 (1978), 931959.

R. W. Holthausen , and D. F. Larcker . “The Financial Performance of Reverse Leveraged Buyouts.” Journal of Financial Economics, 42 (1996), 293332.

N. Jayaraman ; A. Khorana ; E. Nelling ; and J. Covin . “CEO Founder Status and Firm Financial Performance.” Strategic Management Journal, 21 (2000), 12151224.

N. Jegadeesh , and S. Titman . “Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency.” Journal of Finance, 48 (1993), 6591.

M. C Jensen . “The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems.” Journal of Finance, 48 (1993), 831880.

K. M. Kahle , and R. A. Walkling . “The Impact of Industry Classifications on Financial Research.” Journal of Financial and Quantitative Analysis, 31 (1996), 309335.

R. E. Kihlstrom , and J. Laffont . “A General Equilibrium Entrepreneurial Theory of Firm Formation Based on Risk Aversion.” Journal of Political Economy, 87 (1979), 719748.

D. F Larcker . “Discussion of ‘Are Executive Stocks Options Associated with Future Earnings?’Journal of Accounting and Economics, 36 (2003), 91103.

M. B. Low , and I. C. MacMillan . “Entrepreneurship: Past Research and Future Challenges.” Journal of Management, 14 (1988), 139161.

U. Malmendier , and G. Tate . “CEO Overconfidence and Corporate Investment.” Journal of Finance, 60 (2005), 26612700.

R. W. Masulis ; C. Wang ; and F. Xie . “Corporate Governance and Acquirer Returns.” Journal of Finance, 62 (2007), 18511889.

D. O May . “Do Managerial Motives Influence Firm Risk Reduction Strategies?Journal of Finance, 50 (1995), 12911308.

D. C McClelland . “N Achievement and Entrepreneurship: A Longitudinal Study.” Journal of Personality and Social Psychology, 1 (1965), 389392.

S. B. Moeller ; F. P. Schlingemann ; and R. M. Stulz . “Firm Size and the Gains from Acquisitions.” Journal of Financial Economics, 73 (2004), 201228.

R. K. Morck ; A. Shleifer ; and R. W. Vishny . “Management Ownership and Market Valuation: An Empirical Analysis.” Journal of Financial Economics, 20 (1988), 293315.

M. A Petersen . “Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches.” Review of Financial Studies, 22 (2009), 435480.

D. K. Sarasvathy ; H. A. Simon ; and L. Lave . “Perceiving and Managing Business Risks: Differences between Entrepreneurs and Bankers.” Journal of Economic Behavior and Organization, 33 (1998), 207225.

S. Shane , and S. Venkataraman . “The Promise of Entrepreneurship as a Field of Research.” Academy of Management Review, 25 (2000), 217226.

A. Shleifer , and R. W. Vishny . “A Survey of Corporate Governance.” Journal of Finance, 52 (1997), 737783.

J. C Stein . “Efficient Capital Markets, Inefficient Firms: A Model of Myopic Corporate Behavior.” Quarterly Journal of Economics, 104 (1989), 655669.

J. V Terza . “Estimating Count Data Models with Endogenous Switching: Sample Selection and Endogenous Treatment Effects.” Journal of Econometrics, 84 (1998), 129154.

B. Villalonga , and R. Amit . “How Do Family Ownership, Control, and Management Affect Firm Value?Journal of Financial Economics, 80 (2006), 385417.

G. E. Willard ; D. A. Krueger ; and H. R. Feeser . “In Order to Grow, Must the Founder Go: A Comparison of Performance between Founder and Non-Founder Managed High-Growth Manufacturing Firms.” Journal of Business Venturing, 7 (1992), 181194.

Recommend this journal

Email your librarian or administrator to recommend adding this journal to your organisation's collection.

Journal of Financial and Quantitative Analysis
  • ISSN: 0022-1090
  • EISSN: 1756-6916
  • URL: /core/journals/journal-of-financial-and-quantitative-analysis
Please enter your name
Please enter a valid email address
Who would you like to send this to? *


Altmetric attention score

Full text views

Total number of HTML views: 0
Total number of PDF views: 128 *
Loading metrics...

Abstract views

Total abstract views: 675 *
Loading metrics...

* Views captured on Cambridge Core between September 2016 - 24th March 2017. This data will be updated every 24 hours.