What Do CEOs Contribute to Firm Value? How Do CEOs Contribute to Firm Value?

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The question of what CEOs contribute to firm value is important for both public policy and business practice and is the subject of ongoing debate in strategic management. In the current study, we introduce the “group connection” methodology to ensure that CEO effects are identified in investigating the effects of CEOs on firm value. We also introduce a decomposition of performance into a market value channel, a leverage channel and a current earnings channel. We find that CEO effects are substantial and are the most strongly associated with firm value. CEOs have large effects on current earnings and leverage channels of organizations, but smaller effect on the market value channel.


CEOs; CEO effect; executive compensation; group connection method