Hostname: page-component-586b7cd67f-r5fsc Total loading time: 0 Render date: 2024-11-28T16:38:12.908Z Has data issue: false hasContentIssue false
  • English
  • Français

From Playground to Boardroom: Endowed Social Status and Managerial Performance

Published online by Cambridge University Press:  28 January 2021

Fangfang Du Open the ORCID record for Fangfang Du [Opens in a new window]
Fangfang Du*
Affiliation:
California State University Fullerton
*
fangfangdu@fullerton.edu (corresponding author)
Get access Rights & Permissions [Opens in a new window]

Abstract

Using U.S. census survey data on CEOs’ residence in their formative years, I document a negative relation between CEOs’ endowed family wealth and managerial performance. Consistent with the view that CEOs born into low-income families face higher entry barriers but may possess greater levels of ability that enable them to become CEOs, I find that CEOs born into less privileged families outperform those from higher-wealth families. The outperformance of CEOs from less wealthy families is not driven by risk taking or omitted variables. Overall, my results suggest that CEOs’ social endowment provides a useful signal for their managerial ability.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 57 , Issue 3 , May 2022 , pp. 988 - 1022
Copyright
© The Author(s), 2021. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

I thank an anonymous referee as well as Sreedhar Bharath, Michael Hertzel, Paul Malatesta (the editor), Daniel Metzger, Denis Sosyura, Luke Stein, and seminar participants at the 2018 European Finance Association Meeting, Arizona State University, the 2018 Eastern Finance Association Meeting, the 2018 Southwestern Finance Association Meeting, the 2018 Midwest Finance Association Meeting, California State University Fullerton, and the 2017 Financial Management Association Meeting, for helpful comments. I am very grateful to my dissertation committee, Thomas Bates, Ilona Babenko, Yuri Tserlukevich, and Jessie Wang, for valuable comments and encouragement.

References

Adams, R. B.; Almeida, H.; and Ferreira, D.. “Understanding the Relationship Between Founder-CEOs and Firm Performance.” Journal of Empirical Finance, 16 (2009), 136–150.CrossRefGoogle Scholar
Akey, P., and Lewellen, S.. “Policy Uncertainty, Political Capital, and Firm Risk-Taking.” Working Paper, University of Toronto and London Business School (2017).Google Scholar
Altonji, J. G.; Elder, T. E.; and Taber, C. R.. “Selection on Observed and Unobserved Variables: Assessing the Effectiveness of Catholic Schools.” Journal of Political Economy, 113 (2005), 151–184.CrossRefGoogle Scholar
Anderson, R. C., and Reeb, D. M.. “Founding-Family Ownership and Firm Performance: Evidence from the S&P 500.” Journal of Finance, 58 (2003), 1301–1328.CrossRefGoogle Scholar
Arellano, Y.; Bai, C.; and Kehoe, P.. “Financial Markets and Fluctuations in Uncertainty.” Working Paper, Federal Reserve Bank of Minneapolis (2012).Google Scholar
Ashenfelter, O., and Rouse, C.. “Income, Schooling, and Ability: Evidence from a New Sample of Identical Twins.” Quarterly Journal of Economics, 113 (1998), 253–284.CrossRefGoogle Scholar
Baker, S. R.; Bloom, N.; and Davis, S. J.. “Measuring Economic Policy Uncertainty.” Quarterly Journal of Economics, 131 (2016), 1593–1636.CrossRefGoogle Scholar
Bartlett, R. P., and Partnoy, F.. “The Misuse of Tobin’s q.” UC Berkeley Public Law Research Paper (2018).CrossRefGoogle Scholar
Becker, B. “Wealth and Executive Compensation.” Journal of Finance, 61 (2006), 379–397.CrossRefGoogle Scholar
Bennedsen, M.; Nielsen, K. M.; Perez-Gonzalez, Francisco; and Wolfenzon, Daniel. “Inside the Family Firm: The Role of Families in Succession Decisions and Performance.” Quarterly Journal of Economics, 122 (2007), 647–691.CrossRefGoogle Scholar
Bernile, G.; Bhagwat, V.; and Rau, P. R.. “What Doesn’t Kill You Will Only Make You More Risk-Loving: Early-Life Disasters and CEO Behavior.” Journal of Finance, 72 (2017), 167–206.CrossRefGoogle Scholar
Bertrand, M., and Schoar, A.. “Managing with Style: The Effect of Managers on Firm Policies.” Quarterly Journal of Economics, 118 (2003), 1169–1208.CrossRefGoogle Scholar
Black, S. E.; Devereux, P. J.; and Salvanes, K. G.. “The More the Merrier? The Effect of Family Size and Birth Order on Children’s Education.” Quarterly Journal of Economics, 120 (2005), 669–700.Google Scholar
Blau, P. M., and Duncan, O. D.. American Occupational Structure. New York, NY: John Wiley and Sons (1967).Google Scholar
Bolton, P.; Chen, H.; and Wang, N.. “A Unified Theory of Tobin’s q, Corporate Investment, Financing, and Risk Management.” Journal of Finance, 66 (2011), 1545–1578.CrossRefGoogle Scholar
Borisov, A.; Goldman, E.; and Gupta, N.. “The Corporate Value of (Corrupt) Lobbying.” Review of Financial Studies, 29 (2016), 1039–1071.CrossRefGoogle Scholar
Bowles, S.; Gintis, H.; and Groves, M. O.. “The Determinants of Earnings: A Behavioral Approach.” Journal of Economic Literature, 39 (2001), 1137–1176.CrossRefGoogle Scholar
Boyd, B. “Corporate Linkages and Organizational Environment: A Test of the Resource Dependence Model.” Strategic Management Journal, 11 (1990), 419–430.CrossRefGoogle Scholar
Burt, R. S. “A Note on Social Capital and Network Content.” Social Networks, 19 (1997), 355–373.CrossRefGoogle Scholar
Cheffers, M.; Whalen, D.; and Usvyatsky, O.. “2009 Financial Restatements: A Nine Year Comparison.” Available at https://www.auditanalytics.com/doc/AuditAnalytics_2009_Restatementseport_02_2010.pdf (2010).Google Scholar
Chetty, R., and Hendren, N.. “The Impacts of Neighborhoods on Intergenerational Mobility I: Childhood Exposure Effects.” Quarterly Journal of Economics, 133 (2018a), 1107–1162.CrossRefGoogle Scholar
Chetty, R., and Hendren, N.. “The Impacts of Neighborhoods on Intergenerational Mobility II: County-Level Estimates.” Quarterly Journal of Economics, 133 (2018b), 1163–1228.CrossRefGoogle Scholar
Chetty, R.; Hendren, N.; Kline, P.; and Saez, E.. “Where Is the Land of Opportunity? The Geography of Intergenerational Mobility in the United States.” Quarterly Journal of Economics, 129 (2014), 1553–1623.CrossRefGoogle Scholar
Chuprinin, O., and Sosyura, D.. “Family Descent as a Signal of Managerial Quality: Evidence from Mutual Funds.” Review of Financial Studies, 31 (2018), 3756–3820.CrossRefGoogle Scholar
Denis, D. J., and Denis, D. K.. “Performance Changes Following Top Management Dismissals.” Journal of Finance, 50 (1995), 1029–1057.CrossRefGoogle Scholar
DiMaggio, P., and Garip, F.. “Network Effects and Social Inequality.” Annual Review of Sociology, 38 (2012), 93–118.CrossRefGoogle Scholar
Domhoff, G. W.; Staples, C.; and A. Schneider. Who Rules America? Triumph of the Corporate Rich. New York, NY: McGraw-Hill Education (2013).Google Scholar
Durnev, A. “The Real Effects of Political Uncertainty: Elections and Investment Sensitivity to Stock Prices.” Working Paper, University of Iowa (2010).Google Scholar
Engelberg, J.; Gao, P.; and Parson, C. A.. “Friends with Money.” Journal of Financial Economics, 103 (2012), 169–188.CrossRefGoogle Scholar
Erickson, T., and Whited, T. M.. “Treating Measurement Error in Tobin’s q.” Review of Financial Studies, 25 (2012), 1286–1329.CrossRefGoogle Scholar
Fahlenbrach, R. “Founder–CEOs, Investment Decisions, and Stock Market Performance.” Journal of Financial and Quantitative Analysis, 44 (2009), 439–466.CrossRefGoogle Scholar
Gilchrist, J. W.; Sim, S.; and Zakrajek, E.. “Uncertainty, Financial Frictions, and Investment Dynamics.” NBER Working Paper No. 20038 (2014).CrossRefGoogle Scholar
Gilens, M., and Page, B. I.. “Testing Theories of American Politics: Elites, Interest Groups, and Average Citizens.” Perspectives on Politics, 12 (2014), 564–581.CrossRefGoogle Scholar
Gow, I.; Kaplan, S.; Larcker, D.; and Zakolyukina, A.. “CEO Personality and Firm Policies.” NBER Working Paper No. 22435 (2016).CrossRefGoogle Scholar
Gulen, H., and Ion, M.. “Policy Uncertainty and Corporate Investment.” Review of Financial Studies, 29 (2016), 523–564.Google Scholar
Hacker, J. S., and Pierson, P.. Winner-Take-All Politics: How Washington Made the Rich Richer and Turned Its Back on the Middle Class. New York, NY: Simon and Schuster (2010).Google Scholar
Hadlock, C. J., and Pierce, J. R.. “New Evidence on Measuring Financial Constraints: Moving Beyond the KZ Index.” Review of Financial Studies, 23 (2010), 1909–1940.CrossRefGoogle Scholar
Hermalin, B. E., and Weisbach, M. S.. “Endogenously Chosen Boards of Directors and Their Monitoring of the CEO.” American Economic Review, 88 (1998), 96–118.Google Scholar
Hirshleifer, D., and Thakor, A.. “Managerial Performance, Boards of Directors and Takeover Bidding.” Journal of Corporate Finance, 1 (1994), 63–90.CrossRefGoogle Scholar
Hochberg, Y. V., and Lindsey, L.. “Incentives, Targeting, and Firm Performance: An Analysis of Non-Executive Stock Options.” Review of Financial Studies, 15 (2010), 1283–1324.Google Scholar
Huson, M. R.; Malatesta, P. H.; and Parrino, R.. “Managerial Succession and Firm Performance.” Journal of Financial Economics, 74 (2004), 237–275.CrossRefGoogle Scholar
Jens, C. “Political Uncertainty and Investment: Causal Evidence from U.S. Gubernatorial Elections.” Journal of Financial Economics, 124 (2017), 563–579.CrossRefGoogle Scholar
Jenter, D., and Kanaan, F.. “CEO Turnover and Relative Performance Evaluation.” Journal of Finance, 70 (2015), 2155–2183.CrossRefGoogle Scholar
Jokela, M.; Bleidorn, W.; Lamb, M. E.; Gosling, S. D.; and Rentfrow, P. J.. “Geographically Varying Associations Between Personality and Life Satisfaction in the London Metropolitan Area.” Proceedings of the National Academy of Sciences, 112 (2014), 725–730.CrossRefGoogle Scholar
Kaplan, S. N.; Klebanov, M. M.; and Sorensen, M.. “Which CEO Characteristics and Abilities Matter?” Journal of Finance, 67 (2012), 973–1007.CrossRefGoogle Scholar
Kogan, L.; Papanikolaou, D.; Seru, A.; and Stoffman, N.. “Technological Innovation, Resource Allocation, and Growth.” Quarterly Journal of Economics, 132 (2017), 665–712.CrossRefGoogle Scholar
Levine, R., and Rubinstein, Y.. “Smart and Illicit: Who Becomes an Entrepreneur and Do They Earn More?” Quarterly Journal of Economics, 132 (2017), 963–1018.CrossRefGoogle Scholar
Lin, N. “Inequality in Social Capital.” Contemporary Sociology, 29 (2000), 785–795.CrossRefGoogle Scholar
Malmendier, U., and Nagel, S.. “Depression Babies: Do Macroeconomic Experiences Affect Risk Taking?” Quarterly Journal of Economics, 126 (2011), 373–416.CrossRefGoogle Scholar
Malmendier, U., and Tate, G.. “Who Makes Acquisitions? CEO Overconfidence and the Market’s Reaction.” Journal of Financial Economics, 89 (2008), 20–43.CrossRefGoogle Scholar
Mehrotra, V.; Morck, R.; Shim, J.; and Wiwattanakantang, Y.. “Adoptive Expectations: Rising Sons in Japanese Family Firms.” Journal of Financial Economics, 108 (2013), 840–854.CrossRefGoogle Scholar
Morck, R. K.; Stangeland, D. A.; and Yeung, B.. Inherited Wealth, Corporate Control and Economic Growth: The Canadian Disease? Chicago, IL: University of Chicago Press (2000).Google Scholar
Nguyen-Dang, B. “Does the Rolodex Matter? Corporate Elite’s Small World and the Effectiveness of Boards of Directors.” Management Science, 585 (2012), 236–252.CrossRefGoogle Scholar
Oster, E. “Unobservable Selection and Coefficient Stability: Theory and Evidence.” Journal of Business and Economic Statistics, 37 (2019), 187–204.CrossRefGoogle Scholar
Pastor, L., and Veronesi, P.. “Uncertainty About Government Policy and Stock Prices.” Journal of Finance, 67 (2012), 1219–1264.CrossRefGoogle Scholar
Perez-Gonzalez, F. “Inherited Control and Firm Performance.” American Economic Review, 96 (2006), 1559–1588.CrossRefGoogle Scholar
Rivera, L. A. Pedigree: How Elite Students Get Elite Jobs. Princeton, NJ: Princeton University Press (2016).Google Scholar
Schoar, A., and Zuo, L.. “Shaped by Booms and Busts: How the Economy Impacts CEO Careers and Management Styles.” Review of Financial Studies, 30 (2017), 1425–1456.CrossRefGoogle Scholar
Solon, G. “Intergenerational Income Mobility in the United States.” American Economic Review, 82 (1992), 393–408.Google Scholar
Villalonga, B., and Amit, R.. “How Do Family Ownership, Management, and Control Affect Firm Value?” Journal of Financial Economics, 80 (2006), 385–417.CrossRefGoogle Scholar
Warner, J. B.; Watts, R. L.; and Wruck, K.. “Stock Prices and Top Management Changes.” Journal of Financial Economics, 20 (1989), 461–492.CrossRefGoogle Scholar
Weisbach, M. “CEO Turnover and the Firm’s Investment Decisions.” Journal of Financial Economics, 37 (1995), 159–188.CrossRefGoogle Scholar
Zimmerman, D. J. “Regression Toward Mediocrity in Economic Stature.” American Economic Review, 82 (1992), 409–429.Google Scholar
Supplementary material: PDF

Du supplementary material

Du supplementary material

Download Du supplementary material(PDF)
PDF 160.8 KB