In Conversation with Prof. Dirk Jenter
Author
Watch the latest ECGI Conversation as Dr. Tom Gosling interviews Dirk Jenter, Professor of Finance at the London School of Economics and Political Science on his paper, "Good and Bad CEOs", co-authored with Egor Matveyev, MIT Sloan School of Management and Lukas Roth, University of Alberta and ECGI, which analyzes changes in firm value, performance, and behavior caused by CEO deaths.
The key discussion points are:
▪️ Unexpected CEO deaths can be used to study the value shareholders attribute to the CEO compared with their expectation of the next best option.
▪️ CEO deaths lead to a small reduction in firm value on average but with wide differences based on shareholder perceptions of the value the CEO is adding.
▪️ Share price reactions can easily differ by +/-10%, which given that firms in the study are listed US firms often worth $bns, suggests that shareholders attribute hundreds of millions or billions of dollars to the value of the CEO.
▪️ Share price reactions also differ by the nature of the firm and CEO, with impact significantly negative for young founders and recently listed firms but positive for older founders, suggesting a tendency for entrenchment of long-standing founders.
▪️ Share price reactions correctly predict improving or worsening subsequent real performance, suggesting that shareholder views on CEO value are justified.
▪️ The research suggests that some CEOs are very valuable but equally that there are cases where more decisive board action in removing an underperforming CEO could add significant value to some firms.
The ECGI Conversation Series is part of the Responsible Capitalism initiative.
For more interviews in this series, visit this page.
