Forum for Science, Industry and Business

Sponsored by:     3M 
Search our Site:

 

CEOs with top college degrees no better at improving long-term firm performance than other CEOs

16.09.2010
Whether or not a company's CEO holds a college degree from a top school has no bearing on the firm's long-term performance. And when it comes to getting canned for poor performance, CEOs with degrees from the nation's most prestigious schools are no safer than the average CEO, according to new research from the University of New Hampshire.

Conducted by Brian Bolton, assistant professor of finance at the Whittemore School of Business and Economics at the University of New Hampshire, the new research is presented in the working paper "CEO Education, CEO Turnover, and Firm Performance." The paper is co-authored by Sanjai Bhagat of the Leeds School of Business at University of Colorado at Boulder, and Ajay Subramanian of the J. Mack Robinson College of Business at Georgia State University.

"These findings suggest that both boards and researchers should use caution in placing too much emphasis on an individual's education when trying to assess their ability to lead the company and maximize shareholder value," Bolton says.

The research analyzes the relationship between CEO education, CEO turnover, and firm performance. The researchers were primary interested in the role that CEO education plays in a firm's decision to replace its current CEO, the role that it plays in selecting a new CEO, and whether CEO education significantly affects performance.

The researchers used six main measures of CEO education: whether or not the CEO attended a top 20 undergraduate school, whether or not the CEO has an MBA, law or master's degree, and whether or not the MBA or law degree is from a top 20 program. The study includes nearly 15,000 years of CEO experience data and more than 2,600 cases of CEO turnover from 1992 to 2007.

The researchers found that CEO education does not play a large role in the decision by a firm to replace its current CEO; poorly performing CEOs are replaced, regardless of their education. Education, however, does play a significant role in the selection of the replacement CEO; there is a significantly positive correlation between the education levels of new CEOs and those of the CEOs they replace. For example, even after a CEO with an MBA degree gets fired for poor performance, the board still looks to replace him or her with new CEO who also has an MBA.

Hiring new CEOs with MBA degrees does lead to short-term improvements in operating performance. However, the researchers did not find a significant systematic relationship between CEO education and long-term firm performance. CEO education does not seem to be an appropriate proxy for CEO ability.

"Even though CEO education does not lead to superior performance by firms, firms may rely on CEO education in hiring decisions because they have few other identifiable and measurable criteria to use. All else being equal, they rely on what they believe to be the observable pedigrees of the executive," Bolton says.

"Of course, all else is rarely equal, especially when dealing with something as nebulous and potentially unobservable as managerial talent. Interpersonal skills, leadership ability and strategic vision are among the traits that CEOs should possess; these can be difficult to identify and even more difficult to measure. As a result, boards rely on those characteristics which they may be able to observe: work experience, track record, and education," he says.

The UNH Whittemore School of Business and Economics offers a full complement of high-quality programs in business, economics, accounting, finance, marketing, and hospitality management. Programs are offered at the undergraduate, graduate, and executive development levels. The school is accredited by the Association to Advance Collegiate Schools of Business, the premier accrediting agency for business schools worldwide. For more information, visit http://wsbe.unh.edu/.

The University of New Hampshire, founded in 1866, is a world-class public research university with the feel of a New England liberal arts college. A land, sea, and space-grant university, UNH is the state's flagship public institution, enrolling more than 12,200 undergraduate and 2,200 graduate students.

Brian Bolton | EurekAlert!
Further information:
http://www.unh.edu
http://wsbe.unh.edu/

Further reports about: Business Vision CEO salaries Economics Hampshire MBA UNH

More articles from Studies and Analyses:

nachricht New study: How does Europe become a leading player for software and IT services?
03.04.2017 | Fraunhofer-Institut für System- und Innovationsforschung (ISI)

nachricht Reusable carbon nanotubes could be the water filter of the future, says RIT study
30.03.2017 | Rochester Institute of Technology

All articles from Studies and Analyses >>>

The most recent press releases about innovation >>>

Die letzten 5 Focus-News des innovations-reports im Überblick:

Im Focus: Deep inside Galaxy M87

The nearby, giant radio galaxy M87 hosts a supermassive black hole (BH) and is well-known for its bright jet dominating the spectrum over ten orders of magnitude in frequency. Due to its proximity, jet prominence, and the large black hole mass, M87 is the best laboratory for investigating the formation, acceleration, and collimation of relativistic jets. A research team led by Silke Britzen from the Max Planck Institute for Radio Astronomy in Bonn, Germany, has found strong indication for turbulent processes connecting the accretion disk and the jet of that galaxy providing insights into the longstanding problem of the origin of astrophysical jets.

Supermassive black holes form some of the most enigmatic phenomena in astrophysics. Their enormous energy output is supposed to be generated by the...

Im Focus: A Quantum Low Pass for Photons

Physicists in Garching observe novel quantum effect that limits the number of emitted photons.

The probability to find a certain number of photons inside a laser pulse usually corresponds to a classical distribution of independent events, the so-called...

Im Focus: Microprocessors based on a layer of just three atoms

Microprocessors based on atomically thin materials hold the promise of the evolution of traditional processors as well as new applications in the field of flexible electronics. Now, a TU Wien research team led by Thomas Müller has made a breakthrough in this field as part of an ongoing research project.

Two-dimensional materials, or 2D materials for short, are extremely versatile, although – or often more precisely because – they are made up of just one or a...

Im Focus: Quantum-physical Model System

Computer-assisted methods aid Heidelberg physicists in reproducing experiment with ultracold atoms

Two researchers at Heidelberg University have developed a model system that enables a better understanding of the processes in a quantum-physical experiment...

Im Focus: Glacier bacteria’s contribution to carbon cycling

Glaciers might seem rather inhospitable environments. However, they are home to a diverse and vibrant microbial community. It’s becoming increasingly clear that they play a bigger role in the carbon cycle than previously thought.

A new study, now published in the journal Nature Geoscience, shows how microbial communities in melting glaciers contribute to the Earth’s carbon cycle, a...

All Focus news of the innovation-report >>>

Anzeige

Anzeige

Event News

Expert meeting “Health Business Connect” will connect international medical technology companies

20.04.2017 | Event News

Wenn der Computer das Gehirn austrickst

18.04.2017 | Event News

7th International Conference on Crystalline Silicon Photovoltaics in Freiburg on April 3-5, 2017

03.04.2017 | Event News

 
Latest News

New quantum liquid crystals may play role in future of computers

21.04.2017 | Physics and Astronomy

A promising target for kidney fibrosis

21.04.2017 | Health and Medicine

Light rays from a supernova bent by the curvature of space-time around a galaxy

21.04.2017 | Physics and Astronomy

VideoLinks
B2B-VideoLinks
More VideoLinks >>>