Evaluation of differences in performance between shareholder-CEO-led and professional-CEO-led large companies in Lithuania
Abstract
There is an ongoing debate on what exactly are the differences between founder/shareholder-CEOs and professional-CEOs, and how those differences impact the performance of companies both from a managerial and financial standpoint. Though this issue attracted a lot of attention from scholars during the last 30 years, and the consensus has formed that there are indeed differences in motivational factors, managerial capabilities as well as risk-taking decisions between founder/shareholder-CEOs and professional-CEOs, the research on how this impacts firm performance provides inconsistent results. This paper aims to add to existing research in the field by evaluating whether there are significant differences in revenue growth rates and profitability between founder/shareholder-CEO-led and professional-CEO-led companies. Based on the revenue and profit data for the 5-year period of 2016 to 2020 of a sample of 205 of the largest companies in Lithuania, no significant differences in performance were identified. In this sense, this study confirms the generalization that the influence of a CEO diminishes as ventures grow and mature.
Keyword : founder-CEO, shareholder-CEO, professional-CEO, performance, revenue growth, profitability
How to Cite
Voveris, D. (2023). Evaluation of differences in performance between shareholder-CEO-led and professional-CEO-led large companies in Lithuania. Business: Theory and Practice, 24(1), 82–92. https://doi.org/10.3846/btp.2023.17596
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Ang, J. S., Cole, R. A., & Lin, J. W. (2000). Agency costs and ownership structure. The Journal of Finance, 55(1), 81–106. https://doi.org/10.1111/0022-1082.00201
Bamford, C. E., Bruton, G. D., & Hinson, Y. L. (2006). Founder/Chief executive officer exit: A social capital perspective of new ventures. Journal of Small Business Management, 44(2), 207–220. https://doi.org/10.1111/j.1540-627X.2006.00164.x
Bendickson, J., Muldoon, J., Liguori, E. W., & Davis, P. E. (2016). Agency theory: Background and epistemology. Journal of Management History, 22(4), 437–449. https://doi.org/10.1108/JMH-06-2016-0028
Bennett, V. M., Lawrence, M., & Sadun, R. (2016). Are founder CEOs good managers? In Measuring entrepreneurial businesses: Current knowledge and challenges (pp. 153–185). National Bureau of Economic Research, Inc. https://doi.org/10.7208/chicago/9780226454108.003.0004
Bertrand, M., & Mullainathan, S. (2000). Agents with and without principals. American Economic Review, 90(2), 203–208. https://doi.org/10.1257/aer.90.2.203
Botosan, C. A. (1997). Disclosure level and the cost of equity capital. The Accounting Review, 72(3), 323–349. http://www.jstor.org/stable/248475
Chen, J., & Thompson, P. (2015). New firm performance and the replacement of founder-CEOs. Strategic Entrepreneurship Journal, 9(3), 243–262. https://doi.org/10.1002/sej.1203
Deb, P., & Wiklund, J. (2017). The effects of CEO founder status and stock ownership on entrepreneurial orientation in small firms. Journal of Small Business Management, 55(1), 32–55. https://doi.org/10.1111/jsbm.12231
Fahlenbrach, R. (2009). Founder-CEOs, investment decisions, and stock market performance. Journal of Financial and Quantitative Analysis, 44(2), 439–466. https://doi.org/10.1017/S0022109009090139
Fama, E. F., & Jensen, M. C. (2005). Agency problems and residual claims. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.94032
Fischer, H. M., & Pollock, T. G. (2017). Effects of social capital and power on surviving transformational change: The case of initial public offerings. Academy of Management Journal, 47(4), 463–481. https://doi.org/10.5465/20159597
Gao, N., & Jain, B. A. (2011). Founder CEO management and the long-run investment performance of IPO firms. Journal of Banking and Finance, 35(7), 1669–1682. https://doi.org/10.1016/j.jbankfin.2010.11.008
Gao, N., & Jain, B. A. (2012). Founder management and the market for corporate control for IPO firms: The moderating effect of the power structure of the firm. Journal of Business Venturing, 27(1), 112–126. https://doi.org/10.1016/j.jbusvent.2010.06.001
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Jain, B. A., & Tabak, F. (2008). Factors influencing the choice between founder versus non-founder CEOs for IPO firms. Journal of Business Venturing, 23(1), 21–45. https://doi.org/10.1016/j.jbusvent.2005.11.001
Jayaraman, N., Khorana, A., Nelling, E., & Covin, J. (2000). CEO founder status and firm financial performance. Strategic Management Journal, 21(12), 1215–1224. https://doi.org/10.1002/1097-0266(200012)21:12<1215::AID-SMJ146>3.0.CO;2-0
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360. https://doi.org/10.1016/0304-405X(76)90026-X
Johnson, N. B., & Droege, S. (2004). Reflections on the generalization of agency theory: Cross-cultural considerations. Human Resource Management Review, 14(3), 325–335. https://doi.org/10.1016/j.hrmr.2004.06.003
Krause, R., Acharya, A. G., & Covin, J. G. (2014). Here I come to save the day: Proposing necessary and sufficient conditions for founder-CEO comeback. Journal of Business Venturing Insights, 1(1–2), 26–30. https://doi.org/10.1016/j.jbvi.2014.09.004
Kumar, M. V. S., Nagarajan, N. J., & Schlingemann, F. P. (2021). The performance of acquisitions of founder CEO firms: The effect of founder firm premium. Strategic Entrepreneurship Journal, 15(4), 619–646. https://doi.org/10.1002/sej.1371
Lee, J. M., Hwang, B. H., & Chen, H. (2017). Are founder CEOs more overconfident than professional CEOs? Evidence from S&P 1500 companies. Strategic Management Journal, 38(3), 751–769. https://doi.org/10.1002/smj.2519
Lee, J. M., Kim, J., & Bae, J. (2020). Founder CEOs and innovation: Evidence from CEO sudden deaths in public firms. Research Policy, 49(1), 103862. https://doi.org/10.1016/j.respol.2019.103862
Lee, S. Y., & Ko, E. J. (2022). Effects of founder CEO duality and board size on foreign IPOs’ survival in US markets. Corporate Governance (Bingley), 22(5), 1054–1077. https://doi.org/10.1108/CG-04-2021-0151
Mousa, F. T., Ritchie, W. J., & Reed, R. (2014). Founder-CEO board involvement and optimal IPO valuation. Management Decision, 52(3), 642–657. https://doi.org/10.1108/MD-02-2013-0088
Panda, B., & Leepsa, N. M. (2017). Agency theory: Review of theory and evidence on problems and perspectives. Indian Journal of Corporate Governance, 10(1), 74–95. https://doi.org/10.1177/0974686217701467
Saltaji, I. M. F. (2013). Corporate governance and agency theory: How to control agency costs. Internal Auditing & Risk Management, 32(1), 51–64. https://EconPapers.repec.org/RePEc:ath:journl:v:32:y:2013:i:1:p:51-64
Shapiro, S. P. (2005). Agency theory. Annual Review of Sociology, 31, 263–284. https://doi.org/10.1146/annurev.soc.31.041304.122159
Shekshnia, S. (2008). Founder-CEO succession: the Russian paradox. European Journal of International Management, 2(1), 39–55. https://doi.org/10.1504/EJIM.2008.016927
Statistics Lithuania. (2019). Lithuanian statistical yearbook. https://osp.stat.gov.lt/lietuvos-statistikos-metrastis/lsm-2019/ukis-ir-finansai/nacionalines-saskaitos
Tang, Y., Li, J., & Liu, Y. (2015). Does founder CEO status affect firm risk taking? Journal of Leadership & Organizational Studies, 23(3), 322–334. https://doi.org/10.1177/1548051815623736
Ur, H., Khan, R., bin Khidmat, W., al Hares, O., Muhammad, N., & Saleem, K. (2020). Corporate governance quality, ownership structure, agency costs and firm performance. Evidence from an emerging economy. Journal of Risk and Financial Management, 13(7), 154. https://doi.org/10.3390/jrfm13070154
Verslo žinios. (2017). List of 1000 largest companies in Lithuania 2017. https://www.vz.lt/verslo-aplinka/top1000-2017
Verslo žinios. (2021). List of 1000 largest companies in Lithuania 2021. https://www.vz.lt/verslo-aplinka/top1000-2020
Wang, G. Y. (2010). The impacts of free cash flows and agency costs on firm performance. Journal of Service Science and Management, 3(4), 408–418. https://doi.org/10.4236/jssm.2010.34047
Wasserman, N. (2003). Founder-CEO succession and the paradox of entrepreneurial success. Organization Science, 14(2), 149–172. https://doi.org/10.1287/orsc.14.2.149.14995
Willard, G. E., Krueger, D. A., & Feeser, H. R. (1992). In order to grow, must the founder go: A comparison of performance between founder and non-founder managed high-growth manufacturing firms. Journal of Business Venturing, 7(3), 181–194. https://doi.org/10.1016/0883-9026(92)90025-M
Wright, P., Ferris, S. P., Sarin, A., & Awasthi, V. (2017). Impact of corporate insider, blockholder, and institutional equity ownership on firm risk taking. Academy of Management Journal, 39(2), 441–458. https://doi.org/10.2307/256787
Wright, P., Mukherji, A., & Kroll, M. J. (2001). A reexamination of agency theory assumptions: Extensions and extrapolations. The Journal of Socio-Economics, 30(5), 413–429. https://doi.org/10.1016/S1053-5357(01)00102-0
Zaandam, A., Hasija, D., Ellstrand, A. E., & Cummings, M. E. (2021). Founder and professional CEOs’ performance differences across institutions: A meta-analytic study. Global Strategy Journal, 11(4), 620–655. https://doi.org/10.1002/gsj.1414
Abebe, M. A., & Tangpong, C. (2018). Founder-CEOs and corporate turnaround among declining firms. Corporate Governance: An International Review, 26(1), 45–57. https://doi.org/10.1111/corg.12216
Abebe, M., & Anthony Alvarado, D. (2013). Founder-CEO status and firm performance: An exploratory study of alternative perspectives. Journal of Strategy and Management, 6(4), 343–357. https://doi.org/10.1108/JSMA-03-2013-0014
Aggarwal, R. K., & Samwick, A. A. (2003). Why do managers diversify their firms? Agency reconsidered. Journal of Finance, 58(1), 71–118. https://doi.org/10.1111/1540-6261.00519
Ang, J. S., Cole, R. A., & Lin, J. W. (2000). Agency costs and ownership structure. The Journal of Finance, 55(1), 81–106. https://doi.org/10.1111/0022-1082.00201
Bamford, C. E., Bruton, G. D., & Hinson, Y. L. (2006). Founder/Chief executive officer exit: A social capital perspective of new ventures. Journal of Small Business Management, 44(2), 207–220. https://doi.org/10.1111/j.1540-627X.2006.00164.x
Bendickson, J., Muldoon, J., Liguori, E. W., & Davis, P. E. (2016). Agency theory: Background and epistemology. Journal of Management History, 22(4), 437–449. https://doi.org/10.1108/JMH-06-2016-0028
Bennett, V. M., Lawrence, M., & Sadun, R. (2016). Are founder CEOs good managers? In Measuring entrepreneurial businesses: Current knowledge and challenges (pp. 153–185). National Bureau of Economic Research, Inc. https://doi.org/10.7208/chicago/9780226454108.003.0004
Bertrand, M., & Mullainathan, S. (2000). Agents with and without principals. American Economic Review, 90(2), 203–208. https://doi.org/10.1257/aer.90.2.203
Botosan, C. A. (1997). Disclosure level and the cost of equity capital. The Accounting Review, 72(3), 323–349. http://www.jstor.org/stable/248475
Chen, J., & Thompson, P. (2015). New firm performance and the replacement of founder-CEOs. Strategic Entrepreneurship Journal, 9(3), 243–262. https://doi.org/10.1002/sej.1203
Deb, P., & Wiklund, J. (2017). The effects of CEO founder status and stock ownership on entrepreneurial orientation in small firms. Journal of Small Business Management, 55(1), 32–55. https://doi.org/10.1111/jsbm.12231
Fahlenbrach, R. (2009). Founder-CEOs, investment decisions, and stock market performance. Journal of Financial and Quantitative Analysis, 44(2), 439–466. https://doi.org/10.1017/S0022109009090139
Fama, E. F., & Jensen, M. C. (2005). Agency problems and residual claims. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.94032
Fischer, H. M., & Pollock, T. G. (2017). Effects of social capital and power on surviving transformational change: The case of initial public offerings. Academy of Management Journal, 47(4), 463–481. https://doi.org/10.5465/20159597
Gao, N., & Jain, B. A. (2011). Founder CEO management and the long-run investment performance of IPO firms. Journal of Banking and Finance, 35(7), 1669–1682. https://doi.org/10.1016/j.jbankfin.2010.11.008
Gao, N., & Jain, B. A. (2012). Founder management and the market for corporate control for IPO firms: The moderating effect of the power structure of the firm. Journal of Business Venturing, 27(1), 112–126. https://doi.org/10.1016/j.jbusvent.2010.06.001
Gray, C., & Mabey, C. (2016). Management development: Key differences between small and large businesses in Europe. International Small Business Journal: Researching Entrepreneurship, 23(5), 467–485. https://doi.org/10.1177/0266242605055908
Hoang, L. D., Tuan, T. M., van Tue Nha, P., Long, T. P., & Phuong, T. T. (2019). Impact of agency costs on firm performance: Evidence from Vietnam. Organizations and Markets in Emerging Economies, 10(2), 294–309. https://doi.org/10.15388/omee.2019.10.15
Jain, B. A., & Tabak, F. (2008). Factors influencing the choice between founder versus non-founder CEOs for IPO firms. Journal of Business Venturing, 23(1), 21–45. https://doi.org/10.1016/j.jbusvent.2005.11.001
Jayaraman, N., Khorana, A., Nelling, E., & Covin, J. (2000). CEO founder status and firm financial performance. Strategic Management Journal, 21(12), 1215–1224. https://doi.org/10.1002/1097-0266(200012)21:12<1215::AID-SMJ146>3.0.CO;2-0
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360. https://doi.org/10.1016/0304-405X(76)90026-X
Johnson, N. B., & Droege, S. (2004). Reflections on the generalization of agency theory: Cross-cultural considerations. Human Resource Management Review, 14(3), 325–335. https://doi.org/10.1016/j.hrmr.2004.06.003
Krause, R., Acharya, A. G., & Covin, J. G. (2014). Here I come to save the day: Proposing necessary and sufficient conditions for founder-CEO comeback. Journal of Business Venturing Insights, 1(1–2), 26–30. https://doi.org/10.1016/j.jbvi.2014.09.004
Kumar, M. V. S., Nagarajan, N. J., & Schlingemann, F. P. (2021). The performance of acquisitions of founder CEO firms: The effect of founder firm premium. Strategic Entrepreneurship Journal, 15(4), 619–646. https://doi.org/10.1002/sej.1371
Lee, J. M., Hwang, B. H., & Chen, H. (2017). Are founder CEOs more overconfident than professional CEOs? Evidence from S&P 1500 companies. Strategic Management Journal, 38(3), 751–769. https://doi.org/10.1002/smj.2519
Lee, J. M., Kim, J., & Bae, J. (2020). Founder CEOs and innovation: Evidence from CEO sudden deaths in public firms. Research Policy, 49(1), 103862. https://doi.org/10.1016/j.respol.2019.103862
Lee, S. Y., & Ko, E. J. (2022). Effects of founder CEO duality and board size on foreign IPOs’ survival in US markets. Corporate Governance (Bingley), 22(5), 1054–1077. https://doi.org/10.1108/CG-04-2021-0151
Mousa, F. T., Ritchie, W. J., & Reed, R. (2014). Founder-CEO board involvement and optimal IPO valuation. Management Decision, 52(3), 642–657. https://doi.org/10.1108/MD-02-2013-0088
Panda, B., & Leepsa, N. M. (2017). Agency theory: Review of theory and evidence on problems and perspectives. Indian Journal of Corporate Governance, 10(1), 74–95. https://doi.org/10.1177/0974686217701467
Saltaji, I. M. F. (2013). Corporate governance and agency theory: How to control agency costs. Internal Auditing & Risk Management, 32(1), 51–64. https://EconPapers.repec.org/RePEc:ath:journl:v:32:y:2013:i:1:p:51-64
Shapiro, S. P. (2005). Agency theory. Annual Review of Sociology, 31, 263–284. https://doi.org/10.1146/annurev.soc.31.041304.122159
Shekshnia, S. (2008). Founder-CEO succession: the Russian paradox. European Journal of International Management, 2(1), 39–55. https://doi.org/10.1504/EJIM.2008.016927
Statistics Lithuania. (2019). Lithuanian statistical yearbook. https://osp.stat.gov.lt/lietuvos-statistikos-metrastis/lsm-2019/ukis-ir-finansai/nacionalines-saskaitos
Tang, Y., Li, J., & Liu, Y. (2015). Does founder CEO status affect firm risk taking? Journal of Leadership & Organizational Studies, 23(3), 322–334. https://doi.org/10.1177/1548051815623736
Ur, H., Khan, R., bin Khidmat, W., al Hares, O., Muhammad, N., & Saleem, K. (2020). Corporate governance quality, ownership structure, agency costs and firm performance. Evidence from an emerging economy. Journal of Risk and Financial Management, 13(7), 154. https://doi.org/10.3390/jrfm13070154
Verslo žinios. (2017). List of 1000 largest companies in Lithuania 2017. https://www.vz.lt/verslo-aplinka/top1000-2017
Verslo žinios. (2021). List of 1000 largest companies in Lithuania 2021. https://www.vz.lt/verslo-aplinka/top1000-2020
Wang, G. Y. (2010). The impacts of free cash flows and agency costs on firm performance. Journal of Service Science and Management, 3(4), 408–418. https://doi.org/10.4236/jssm.2010.34047
Wasserman, N. (2003). Founder-CEO succession and the paradox of entrepreneurial success. Organization Science, 14(2), 149–172. https://doi.org/10.1287/orsc.14.2.149.14995
Willard, G. E., Krueger, D. A., & Feeser, H. R. (1992). In order to grow, must the founder go: A comparison of performance between founder and non-founder managed high-growth manufacturing firms. Journal of Business Venturing, 7(3), 181–194. https://doi.org/10.1016/0883-9026(92)90025-M
Wright, P., Ferris, S. P., Sarin, A., & Awasthi, V. (2017). Impact of corporate insider, blockholder, and institutional equity ownership on firm risk taking. Academy of Management Journal, 39(2), 441–458. https://doi.org/10.2307/256787
Wright, P., Mukherji, A., & Kroll, M. J. (2001). A reexamination of agency theory assumptions: Extensions and extrapolations. The Journal of Socio-Economics, 30(5), 413–429. https://doi.org/10.1016/S1053-5357(01)00102-0
Zaandam, A., Hasija, D., Ellstrand, A. E., & Cummings, M. E. (2021). Founder and professional CEOs’ performance differences across institutions: A meta-analytic study. Global Strategy Journal, 11(4), 620–655. https://doi.org/10.1002/gsj.1414