Ceo Behavior and Firm Performance

Bandiera Oriana (LSE)
Stephen Hansen (Pompeu Fabra)
Andrea Prat (Columbia)
Raffaella Sadun (Harvard)

Abstract: We measure the behavior of over 1,100 CEOs in six countries (Brazil, France, Ger- many, India, UK and US) using a new methodology that combines (i) a survey that records each activity the CEOs undertake in a random work-week and (ii) a machine learning algorithm that projects these high dimensional data onto one CEO behavior index. A simple firm-CEO matching model yields the null hypothesis that, in absence of matching frictions, CEO behavior is uncorrelated with firm performance. Combining the CEO behavior index with firm level accounting data we reject this null. We find a large and significant correlation between CEO behavior and firm performance, which appears gradually over time after the CEO is appointed and is stronger in poorer regions. Structural estimates of the share of mismatched firm-CEO pairs reveal that eliminating matching frictions would have a large effect on productivity.