CEO types: “Leaders,” who do multifunction, high-level meetings, & “managers,” who do individual meetings with core functions; firms that hire leaders perform better (it takes 3 years to see the difference)

Oriana Bandiera, Andrea Prat, Stephen Hansen, and Raffaella Sadun, "CEO Behavior and Firm Performance," Journal of Political Economy 0, no. 0 (-Not available-): 000. Feb 2020. https://doi.org/10.1086/705331

Abstract: We develop a new method to measure CEO behavior in large samples via a survey that collects high-frequency, high-dimensional diary data and a machine learning algorithm that estimates behavioral types. Applying this method to 1,114 CEOs in six countries reveals two types: “leaders,” who do multifunction, high-level meetings, and “managers,” who do individual meetings with core functions. Firms that hire leaders perform better, and it takes three years for a new CEO to make a difference. Structural estimates indicate that productivity differentials are due to mismatches rather than to leaders being better for all firms.

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From a 2017 version (https://www.hbs.edu/faculty/Pages/item.aspx?num=55632):
Conclusions
This paper combines a new survey methodology with a machine learning algorithm to measure the behavior of CEOs in large samples. We show that CEOs di↵er in their behavior along several dimensions, and that the data can be reduced to a summary CEO index which distinguishes between “managers” –i.e. CEOs that are primarily involved with production-related activities– and leaders -i.e. CEOs that are primarily involved in communication and coordination activities.

Guided by a simple firm-CEO assignment model, we show that there is no “best practice” in
CEO behavior—that is, a behavior that is optimal for all the firms—rather, there is evidence of
horizontal di↵erentiation in CEO behavior, and significant frictions in the assignment of CEOs to firms. In our sample of manufacturing firms across six countries we estimate that 17% of firm-CEO pairs are misassigned and that misassignments are found in all regions but are more frequent in emerging economies. The consequences for productivity are large: the implied productivity loss due to di↵erential misassignment is equal to 13% of the labor productivity gap between firms in high- and middle/low-income countries in our sample.

This paper shows that an under explored dimension of managerial activity–that is, how CEOs
spend their time–is both heterogeneous across managers and firms, and correlated with firm performance. Future work could utilize our data and methodology to inform new leadership models, which incorporate more explicitly the drivers and consequences of di↵erences in CEO behavior, and in particular explore the underlying firm-CEO matching function, which is not dealt with explicitly in the current paper. Furthermore, a possible next step of this research would be to extend the data collection to the diaries of multiple managerial figures beyond the CEO. This approach would allow us to further explore whether and how managerial interactions and team behavior vary across firms and correlate with firm performance (Hambrick and Mason, 1984). These aspects of managerial behavior, which are now largely absent from our analysis, are considered to be increasingly important in the labor market (Deming (2015)), but have so far been largely unexplored from an empirical perspective. We leave these topics for further research.