'Til Death Do Us Part : The Relative Merits of Founder CEOs

This paper addresses a question faced by every firm in the economy, namely is it optimal for a firm's founder to lead the company as CEO? To identify the treatment effect of founder CEOs on corporate policy and firm value, I exploit a natural experiment involving exogenous founder-to-professional CEO turnovers that arise from a founder's death or illness. I find that, relative to comparable firms that retain their founder CEO, firms that must switch to a professional CEO experience a 10% reduction in their internally generated innovation. However, professional CEOs counteract this reduced internal R&D productivity by acquiring external technologies through greater M&A activity, increasing firm leverage and nurturing larger, more stable top management teams. These combined policy changes have offsetting firm value implications, implying a “horses for courses” approach to choosing between a founder CEO and a professional CEO