Тема: Effect of CEO’s Cultural and Educational Background on Firm Performance: Evidence from US Technological Sector

Prior to a few decades ago, empirical research only focused on firm-, industry-, or market-level factors to explain corporate behavior and performance. However, both the business press and management have noted that CEOs and other senior executives are the most influential elements in determining organizational practices. This has prompted experts to acknowledge the significance of CEO attributes and their impact on various organizational aspects.
In today’s new era of uncertainty, higher complexity, accelerated digitalization and innovation, the role of CEO as the leader of the company is more important than ever. With this study we aim to study particular traits of CEOs rooted in their cultural and educational background that matter the most in terms of company performance in the new era of complex and uncertain environment. Indeed, the growing complexity and instability of our dynamic world raises the question of what characteristics contemporary leaders should possess. The current shock brought about by the COVID-19 outbreak has for an extended period of time, increased uncertainty significantly. It has impacted virtually every business, industry, and country on the planet. Certain sectors have been hit worse than others, based on their capacity to operate and sell remotely, as well as the impact of social distancing measures on their operations.
In our research we will focus on one of those sectors, i.e. technological. During these times of global epidemic, technological sector performed a critical role. With the capacity to perform numerous ordinary chores remotely, such as working, studying, shopping, and obtaining healthcare, technology has enabled people to maintain a sense of normality in this new world. According to McKinsey Global Survey of executives (2020), pandemics significantly advanced businesses' digital transformation. If the world's rate of progress was already rapid before to the coronavirus, the luxury of time now appears to have vanished entirely. Companies that previously planned their digital strategy over a one- to three-year period now must grow their projects in a matter of days or weeks. Hence, to remain competitive in today's corporate and economic environment, new methods and techniques are required. With increased growth potential at such organizations, another outcome of this process is a greater demand for talented CEOs capable of capitalizing on such chances. As a result, we will concentrate on a homogeneous industry, specifically the US technological sector, in order to account for significant variances in CEO talent that have contributed to such firms' recent success. 7
While this complicated and uncertain environment increases risks, it also presents opportunities in a variety of businesses and fosters innovation and growth. Businesses who can adjust more quickly and efficiently than their competitors will gain in the short and long run. However, such a transition requires a strong vision and significant organizational change. At the CEO level, this becomes a problem. For the foreseeable future, the capacity to function in a complicated, uncertain, and rapidly changing environment will be a significant competitive advantage.
Thus, we return to the subject of how to identify CEOs who possess the characteristics necessary to be great leaders in today's world. Recently, the CEO function has been questioned more than ever. The number of CEO resignations in American businesses exceeded prior records in 2019. By September 2019, 1,009 CEOs of American corporations had resigned. This is even more than in 2008, when the economy was in financial crisis, according to a report by Challenger, Gray & Christmas, when 992 CEOs had resigned as of early September.
One possible explanation is that boards of directors are becoming increasingly critical of top executives. The production cycle and the so-called CEO life cycle have been significantly reduced. Changes are occurring at a faster rate than they were a decade ago: new technologies are emerging, and new young firms with fundamentally new business models are entering the market. And business executives must quickly adapt and adjust in order to maintain this frenetic pace. Today, it's difficult to maintain a position of relevance for more than 10-15 years, because you must quickly adjust to market changes, in fact, establish 2-3 company models during this cycle, as well as alter your habits, attitudes, and ways of work. And if an individual does not succeed, the board of directors replaces him. The rotation is now faster, and a person does not get a high position for ten years, but for three to four years.
Planning and execution do not become obsolete, but they do become prerequisites for a CEO. Several additional attributes are important: the ability to sense the reality of a situation on the fly; the ability to respond effectively, even in the absence of resources to carefully assess major implications; and the ability to learn quickly from experience and incorporate lessons into future plans, execution, and, most importantly, the development of sense and respond capabilities. The Board of Directors is supposed to seek out those characteristics in possible CEOs, but this may be difficult to accomplish, especially in the absence of reliable assessments of those characteristics....
Купить

The world is becoming more complex and uncertain. It increases both risk and opportunities in business. Businesses that can adjust more quickly will gain in the short and long run. So, the ability to function in a complicated and uncertain environment becomes essential. Additionally, that the current shock brought by pandemic forced acceleration of digital transformation, and therefore put significant pressure on the technological sector. With increased growth potential, another outcome of this process is a greater demand for talented CEOs capable of capitalizing on such chances. Finally, boards of directors are becoming more critical of top executives. A number of recent CEO resignations in American businesses exceeded prior records. Many new qualities are expected from executives of today to successfully run the business. This study aims to study such qualities of CEOs that could stem from their cultural and educational background and analyse which of them matter the most in terms of technological company performance in the new era of complex and uncertain environment.
As for the educational background of CEOs: we initially expect the performance to be better for the CEOs with graduate and MBA degrees and positively related with prestige of the CEO educational background. We account for undergraduate, graduate, postgraduate and MBA levels of education and a number of university rankings to assess prestige of education. In terms of effect of cultural background, we use Hosftede dimension to account for CEO cultural values. We hypothesise that the firm performance is higher when the uncertainty avoidance and the power distance of CEO is lower. We use the data on US public tech firms which were led by the same CEO for the period of 5 years from 2017 and 2021 to test our hypotheses. Totally, we analysed 128 firms. The financial data for the empirical analysis is retrieved from Bloomberg Terminal. The data for CEOs' cultural and educational background is hand collected from several available sources. At the end, our data consisted of 896 observations for panel data analysis. We used regression analysis and tested several models to account for separate effects of cultural and educational background, joint effect of level and prestige of education and joint effect of cultural dimensions and level of education.
Contrary to the initial premise, we find that CEOs with a large power distance, who value hierarchy and authority, positively impact performance. In the meantime, we confirm that CEOs who avoid uncertainty report, on average, poorer performance in the current environment. In addition, we demonstrate that education is an essential indicator 44
of CEO ability. Explicitly, we suggest that for tech companies, the technical and scientific understanding of CEOs, as reflected by their graduate level of education, is significant, whereas business education may be a negative factor when selecting a CEO for a tech company, but only if it is not a top-rank MBA. In this instance, the CEO's MBA is clear evidence of their cognitive ability. Furthermore, we demonstrate that the general prestige of the institution is important for firm performance. We believe that our study contributes to prior literature, by expanding the research concerning CEO traits and company performance. As for managerial implications, interested parties may find these results useful for making informed decisions. The board may use it to select a CEO based on the desired characteristics. Choosing the proper CEO may drive a company forward, whilst selecting the wrong leader will set it back several steps. Hence, boards should take into account CEO cultural and educational background as a component that may affect an executive's potential performance as the company's face. From an investor standpoint, as the company's public face, the CEO's observable traits can dramatically impact investors' perceptions of the company and its worth. Investors may use it to evaluate the success of such an appointment and set expectations for future performance.
Купить