CEO management style: does educational background play a role?

Abstract

PurposeThe corporate finance literature has largely treated individual managers as uniform entities, leaving unexplained the large heterogeneity in corporate practices. The authors explore whether educational background attributes, such as a bachelor's degree from an elite institution and the field of study, influence CEO management style manifested in objectively measurable outcomes at the firm level.Design/methodology/approachThe authors construct a unique data set from various sources. The management-style variables encompass investment, financial, organizational strategy policy choices, and performance outcomes. They standardize the style variables by industry sector and express deviations from industry means into three categories (low, medium, high). The ordered logit models suggest that educational background attributes influence management style across several dimensions.FindingsThe authors document numerous statistically and economically significant results. For instance, an elite education translates to superior market performance as measured by Tobin's Q. A background in science/technology manifests in more (less) spending on R&D (advertising) and less exposure to financial risk for the firm. The authors also find that gender plays almost no role, while CEO age has a nonlinear influence role in affecting management style.Research limitations/implicationsThe study posits that educational background plays an important role along several dimensions such as skill and character development, signaling and network building. While these effects are difficult to disentangle, they all arguably influence an individual's ability to perform complex tasks such as running a company.Originality/valueThe paper contributes to the growing literature on the drivers of CEO style and performance. Previous studies have examined the role of a CEO's elite educational background on firm performance outcomes and have reported either no or limited association. In contrast, the authors document that an elite education is strongly linked to superior market performance but not to accounting-based performance measures. They also find that CEOs who major in science/technology exhibit markedly different management styles compared to their counterparts with backgrounds in business/economics or the humanities.