Working Paper: NBER ID: w9527
Authors: Bruce A. Blonigen; Rossitza B. Wooster
Abstract: Anecdotal evidence suggests that new CEOs with foreign backgrounds direct their firms to become more international in their operations. We examine this hypothesis formally using data on U.S. S&P-500 manufacturing firms from 1992 through 1997 and biographical information on CEOs' birth and education locations that allow us to identify changes from U.S.- to foreign-connected CEOs. Robust to a variety of specifications, we find that a U.S. firm's switch from a U.S. to a foreign CEO leads to substantial increases in the firm's proportion of its foreign assets and foreign affiliate sales. In fact, our preferred specification indicates that foreign asset and affiliate sales proportions increase 30 and 50%, respectively, for the five years after there is CEO turnover to one with a foreign background. This is in contrast to U.S.-to-U.S. CEO switches in our sample that show no evidence of changes in a firms' foreign market participation. These large effects contrast with previous literature that finds little evidence for changes in firm performance with CEO turnover.
Keywords: CEO turnover; foreign market participation; international business strategy
JEL Codes: F2; G3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| foreign market participation (prior growth) (F23) | CEO appointment (M12) |
| U.S. CEO (M12) | foreign assets (G15) |
| U.S. CEO (M12) | foreign affiliate sales (F23) |
| foreign CEO (F23) | foreign assets (G15) |
| foreign CEO (F23) | foreign affiliate sales (F23) |
| CEO switch (U.S. to foreign) (F29) | foreign assets (G15) |
| CEO switch (U.S. to foreign) (F29) | foreign affiliate sales (F23) |
| CEO switch (U.S. to U.S.) (M12) | foreign market participation (F23) |