توانایی مدیر عامل و عملکرد شرکت: بازار سهام و واکنش بازار کار CEO ability and firm performance: Stock market and job market reactions

1 Introduction To what extent might a firm’s performance be attributed to the ability of its CEO? Chang et al. (2010) broach this question and assert that the firm performance is indeed related to its CEO’s ability. Specifically, they note that a) abnormal returns of the old firm in conjunction with the turnover announcement is negatively related to its predeparture performance and the salary of its CEO; b) the CEO’s subsequent success is positively related to his salary with and performance of the old firm; c) the postturnover performance of the old firm deteriorates after the better-performing executives with higher salaries depart. The cumulative evidence leads Chang et al. to conclude these results Breject the view that differences in firm performance stem entirely from non-CEO factors such as the firms’ assets, other employees, or Bluck,^ and that CEO pay is unrelated to the CEO’s contribution to firm value^ (p.1633). In this paper, we extend the Chang et al. (2010) paper in three ways. First, we examine if the stock market can make a finer cross-sectional distinction among CEOs based on the level of performance of the associated firms. In doing so, we divide CEOs with better-than-average abilities in two groups: the better-performing group and good-performing group. Second, assuming that the job market would be able to recognize the differential managerial talents, we hypothesize that the CEOs with better abilities would find the job faster and command a higher compensation package than their good counterparts. Finally, we examine if there is (are) any additional attribute(s) that differentiate the first group from the second. We select from voluntary turnovers1 those CEOs that voluntarily leave the jobs are managers with superior ability and CEOs that are fired are of inferior ability. Empirical research supports this premise. For example, Warner et al. (1988) find poor performance as a predictor of forced CEO turnover. In Panel A, Table 2 (page 14), Parrino et al. (2003) compare mean market-adjusted compound abnormal returns between the forced group and the voluntary group and report the abnormal returns for the first group are −30.22%, −10.77%, −10.43%, −15.65% respectively for the holding periods of (−7, 0), (−7, −4), (−3, −2), and (−1, 0) – all being significant at the 1% level. The returns for the same periods, are −1.67%, −.43%, −1.60%, and .23% for the voluntary turnover firms—only (−3, −2) return being significant at the 10% level. Based on the empirically supported notion that voluntarily resigning CEOs are usually superior performers, we first divide these CEOs in two groups: Bbetter^ and Bgood^ performers. Consistent with Chang et al. (2010) we hypothesize that a) abnormal returns of firms from which better CEOs (henceforth, Tier-1) departed would be more negative than those from which good CEOs (henceforth, Tier-2) departed; b) abnormal returns of firms that hired Tier 1 CEOs would be more positive than those that hired Tier-2 CEOs. We also examine if the long-term performance of the hiring firms is consistent with the short-term returns around hiring announcements: in other words, we test if the firms that hire Tier-1 managers would exhibit higher long-term post-hire performance than their Tier-2 counterparts.