Research

This paper presents strong evidence that existing studies overestimate the impact of CEOs on the performance of the firms they lead. Ours is a comprehensive study of more than 3,692 CEOs in 2,103 firms in 22 countries, and for the period 1991-2019. Our objective is to assess the direct impact of CEOs on firm results—measured as Total Shareholder Return and ROIC—after controlling for global, country, industry, and firm effects. Like the previous literature, we find that a CEO dummy explains 2 percent of the variability of stock returns, and 12 percent of the variability in firms’ return on invested capital. However, we show that such relationship is driven by CEOs having an average impact that is economically unimportant, with some CEOs positively affecting performance, and some others destroying value. In fact, analyzing results for the best and worst performing firms, we find that CEOs only improve value in good companies, but destroy value in underperforming firms. Additionally, there is no firm or CEO characteristic (except for CEO tenure) that systematically explains their impact on performance: characteristics such as gender, age, and compensation do not make a difference. This suggest that firms hire top executives for reasons different from their inherent ability to contribute to performance, so CEOs end up doing well only if their firms do well, but not vice versa.

Globalization, already slowing before the COVID-19 pandemic, will likely take multiple hits in its wake. The pandemic and health emergency measures introduced may lead to a prolonged recession, which could be worse than the one experienced in 2009. But will the impact be strong enough to turn an already ongoing post-Global Financial Crisis (GFC) ‘slowbalization’ into outright deglobalization?

Our paper presents strong evidence of securities lending market anticipation of sovereign bond dowgrades in Europe during the period 2008-2012. We construct a sample of bonds from 18 European countries which includes members of the Euroland; EU, non-euro members, as well as non- EU countries. We find that, in the five days preceding a downgrade to speculative grade, securities lending demand and supply increase significantly with respect to the non-downgrade periods for the same issue. We rule out that CRAs use this information to form their decision regarding the downgrade because of the special T + 3 + 1 settlement and reporting period for securities lending transactions in Europe. We find that the increases in lending demand and supply are only significant for downgrades that surprise the market, i.e. downgrades that are not preceded by a previous downgrade or an outlook revision within the past 30 days. The diference in results between these two types of downgrades is evidence against investors using publicly available information to benefit from securities lending.