The Influence of CEO Personal Characteristics on the Market Value of Russian Companies

Cover Page

Cite item

Full Text

Abstract

This paper analyses the impact of a CEO’s demographic and professional characteristics on the market value of the company. The growth of company capitalisation involves the expectations of investors specifically their view of the personality of the CEO, including whether he will be able to maintain the proper level of the company’s work and whether there is expediency in further investment. Therefore, it is extremely important to understand exactly what qualities of a top manager influence investor expectations.
This research is based on data from the 50 largest public Russian companies from non-financial sectors for the period 2011-2019, and iformation is included on 98 CEOs across this period. Herein we define the mechanism of the relationship between the personal characteristics of the CEO and the market value of the company.
Based on a pooled regression assessment, our results indicate that the level of education of the CEO is an insignificant variable, and practical experience is valued higher than academic qualification (this is consistent with the results of previous studies). The market responds positively to the appointment of executives with industry experience. The experience of a CEO in a prior governmental or state role impacts negatively on firm value, and the status of the company’s founder is met with optimism by the market, seeming to assure an interest in strategic development. The status of an outside manager is rated higher by the market than a successful career inside the company. The optimal age of the head of the company from the point of view of positively influencing the value of the company was determined at 49 years.
We conclude that a portrait of the head of a large traded Russian corporation has been constructed in the present work, which contributes to the literature on optimal market perception for businesses and manager.

About the authors

L. Ruzhanskaya

Ural Federal University

Author for correspondence.
Email: l.s.ruzhanskaya@urfu.ru

A. Sizikov

Ural Federal University

Email: anatolysizikov@gmail.com

References

  1. Roshchin S., Solntsev S. The labor market of top managers in Russia. Moscow: NRU HSE Publ.; 2016. 252 p. (In Russ.).
  2. Rumelt R. Good strategy bad strategy: The difference and why it matters. New York: Crown Business; 2011. 336 p.
  3. Daellenbach U.S., McCarthy A.M. Commitment to innovation: The impact of top management team characteristics. R&D Management. 1999;29(3):199-208. doi: 10.1111/1467-9310.00130
  4. DiMaggio P.J., Powell W.W. The iron cage revisited: Institutional isomorphism and collective rationality in organizational fields. American Sociological Review. 1983;48(2):147-160. doi: 10.2307/2095101
  5. Haveman H.A. Follow the leader: Mimetic isomorphism and entry into new markets. Administrative Science Quarterly. 1993;38(4):593-627. doi: 10.2307/2393338
  6. Diaz-Fernández M.C., González-Rodríguez M.R., Pawlak M. Top management demographic characteristics and company performance. Industrial Management & Data Systems. 2014;114(3):365-386. doi: 10.1108/IMDS-04-2013-0210
  7. Hambrick D.C., Mason P.A. Upper echelons: The organization as a reflection of its top managers. The Academy of Management Review. 1984;9(2):193-206. doi: 10.2307/258434
  8. Brett J.F., Cron W.L., Slocum J.W. Jr. Economic dependency on work: A moderator of the relationship between organizational commitment and performance. The Academy of Management Journal. 1995;38(1):261-271. doi: 10.2307/256735
  9. Hambrick D.C. Upper echelons theory: An update. The Academy of Management Review. 2007;32(2):334-343. doi: 10.2307/20159303
  10. Allen N.J., Meyer J.P. The measurement and antecedents of affective, continuance and normative commitment to the organization. Journal of Occupational Psychology. 1990;63(1):1-18. doi: 10.1111/j.2044-8325.1990.tb00506.x
  11. Brealey R., Myers S., Allen F. Principles of corporate finance. 11th ed. New York: McGraw-Hill Book Co.; 2014. 1341 p.
  12. Chaganti R.S., Zimmerman M.A., Kumaraswamy A., Maggitti P., Arkles J.B. TMT characteristic, time-to IPO and firm performance. Journal of Management & Public Policy. 2016;7(2):37-56.
  13. Smith N., Smith V., Verner M. Do women in top management affect firm performance? A panel study of 2,500 Danish firms. International Journal of Productivity and Performance Management. 2005;55(7):569-593. doi: 10.1108/17410400610702160
  14. Rose C. Does female board representation influence firm performance? The Danish evidence. Corporate Governance. 2007;15(2):404-413. doi: 10.1111/j.1467-8683.2007.00570.x
  15. Post C., Byron K. Women on boards and firm financial performance: A meta-analysis. The Academy of Management Journal. 2014;58(5):1546-1571. doi: 10.5465/amj.2013.0319
  16. Auden W.C., Shackman J.D., Onken M.H. Top management team, international risk management factor and firm performance. Team Performance Management. 2006;12(7/8):209-224. doi: 10.1108/13527590610711778
  17. Fischer H.M., Pollock T.G. Effects of social capital and power on surviving transformational change: The case of initial public offerings. The Academy of Management Journal. 2004;47(4):463-481. doi: 10.2307/20159597
  18. Brockmann E.N., Simmonds P.G. Strategic decision making: The influence of CEO experience and use of tacit knowledge. Journal of Managerial Issues. 1997;9(4):454-467.
  19. Roshchin S., Khudenko K. Labor relations at foreign enterprises in Russia. In: Management. Century XX, century XXI. Moscow: Ekonomist; 2004:121-140. (In Russ.).
  20. Balkin D.B., Markman G.D., Gomez-Mejia L.R. Is CEO pay in high-technology firms related to innovation? The Academy of Management Journal. 2000;43(6):1118-1129. doi: 10.5465/1556340
  21. Finkelstein S., Hambrick D.C., Cannella A.A. Jr. Strategic leadership: Theory and research on executives, top management teams, and boards. Oxford, New York: Oxford University Press; 2009. 480 p. doi: 10.1093/acprof:oso/9780195162073.001.0001
  22. Sørensen J.B. The ecology of organizational demography: Managerial tenure distributions and organizational competition. Industrial and Corporate Change. 1999;8(4):713-744. doi: 10.1093/icc/8.4.713
  23. Waldman D.A., Ramírez G.G., House R.J., Puranam P. Does leadership matter? CEO leadership attributes and profitability under conditions of perceived environmental uncertainty. The Academy of Management Journal. 2001;44(1):134-143. doi: 10.2307/3069341
  24. Iaquinto A.L., Fredrickson J.W. Top management team agreement about the strategic decision process: A test of some of its determinants and consequences. Strategic Management Journal. 1997;18(1):63-75. doi: 10.1002/(SICI)1097-0266(199701)18:1<63::AID-SMJ835>3.0.CO;2-N
  25. Finkelstein S., Hambrick D.C. Top-management-team tenure and organizational outcomes: The moderating role of managerial discretion. Administrative Science Quarterly. 1990;35(3):484-503. doi: 10.2307/2393314
  26. Solntsev S. CEOs in Russia: Who reaches the top? Working paper WP15/2009/09. Moscow: NRU HSE; 2009. 32 p. (In Russ.).
  27. Faccio M. Politically connected firms. The American Economic Review. 2006;96(1):369-386. doi: 10.1257/000282806776157704
  28. Fisman R. Estimating the value of political connections. The American Economic Review. 2001;91(4):1095-1102. doi: 10.1257/aer.91.4.1095
  29. Boubakri N., Cosset J.-C., Saffar W. Political connections of newly privatized firms. Journal of Corporate Finance. 2008;14(5):654-673. doi: 10.1016/j.jcorpfin.2008.08.003
  30. Black B.S., Love I., Rachinsky A. Corporate governance indices and firms' market values: Time series evidence from Russia. Emerging Markets Review. 2006;7(4):361-379. doi: 10.1016/j.ememar.2006.09.004
  31. Ivashkovskaya I., Kukina E., Stepanova A. The impact of corporate financial architecture on economic profit: An empirical study of Russian companies in the crisis and pre-crisis periods. In: Proc. 12th Int. sci. conf. on economic and social development (Moscow, 5-7 Apr. 2011). Vol. 4. Moscow: NRU HSE; 2012:39-48. (In Russ.).
  32. Fan J.P.H., Wong T.J., Zhang T. Politically connected CEOs, corporate governance, and post-IPO performance of China's newly partially privatized firms. Journal of Financial Economics. 2007;84(2):330-357. doi: 10.1016/j.jfineco.2006.03.008
  33. Zhang Y., Rajagopalan N. CEO succession planning: Finally at the center stage of the boardroom. Business Horizons. 2010;53(5):455-462. doi: 10.1016/j.bushor.2010.05.003
  34. Filatov A.A. Why do managers become independent directors? Forbes. 2010. URL: http://www.forbes.ru/column/48736-zachem-menedzhery-idut-v-nezavisimye-direktora (accessed on 5.05.2020). (In Russ.).
  35. Certo S.T. Influencing initial public offering investors with prestige: Signaling with board structures. The Academy of Management Journal. 2003;28(3):432-446. doi: 10.5465/amr.2003.10196754
  36. Rajagopalan N., Datta D.K. CEO characteristics: Does industry matter? The Academy of Management Journal. 1996;39(1):197-215. doi: 10.2307/256636
  37. Manner M.H. The impact of CEO characteristics on corporate social performance. Journal of Business Ethics. 2010;93(Suppl. 1):53-72. doi: 10.1007/s10551-010-0626-7
  38. Gottesman A.A., Morey M.R. CEO educational background and firm financial performance. Journal of Applied Finance. 2010;20(2):1-13.
  39. Chirikova A. Woman at the head of the company. Moscow: Institute of Sociology of RAS; 1998. 358 p. (In Russ.).
  40. Kaplan S.N., Klebanov M.M., Sorensen M. Which CEO characteristics and abilities matter? The Journal of Finance. 2012;67(3):973-1007. doi: 10.1111/j.1540-6261.2012.01739.x
  41. Amran N.A., Yosuf M.A.M., Ishak R., Aripin N. Do characteristics of CEO and chairman influence government-linked companies performance? Procedia - Social and Behavioral Sciences. 2014;109:799-803. doi: 10.1016/j.sbspro.2013.12.546
  42. Martin A.D., Nishikawa T., Williams M.A. CEO gender: Effects on valuation and risk. Quarterly Journal of Finance & Accounting. 2009;48(3):23-40.
  43. Chi J., Liao J., Chen X. Political connected CEOs and earnings management: Evidence from China. Journal of the Asia Pacific Economy. 2016;21(3):397-417. doi: 10.1080/13547860.2016.1176644
  44. Elsaid E., Wang X., Davidson W.N. III. Does experience matter? CEO successions by former CEOs. Managerial Finance. 2011;37(10):915-939. doi: 10.1108/03074351111161583
  45. Ben Mohamed E., Jarboui S., Baccar A., Bouri A. On the effect of CEOs' personal characteristics in transport firm value? A stochastic frontier models. Case Studies on Transport Policy. 2015;3(2):176-181. doi: 10.1016/j.cstp.2015.01.001
  46. Pham P.K., Suchard J.-A., Zein J. Corporate governance and alternative performance measures: Evidence from Australian firms. Australian Journal of Management. 2011;36(3):371-386. doi: 10.1177/0312896211413035
  47. Al-Matari E.M., Al-Swidi A.K., Hanim F. The measurements of firm performance's dimensions. Asian Journal of Finance & Accounting. 2014;6(1):24-49. doi: 10.5296/ajfa.v6i1.4761
  48. Chung K.H., Pruitt S.W. A simple approximation of Tobin's q. Financial Management. 1994;23(3):70-74. doi: 10.2307/3665623

Supplementary files

Supplementary Files
Action
1. JATS XML
Download

Copyright (c) 2020 Ruzhanskaya L., Sizikov A.

Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.