Shaped by Booms and Busts: How the Economy Impacts CEO Careers and Management Styles

Antoinette Schoar, Luo Zuo

NBER Working Paper No. 17590
Issued in November 2011
NBER Program(s):   CF

This paper examines how early career experiences affect the career path and promotion of managers as well as the managerial styles that they develop when becoming CEOs. We identify the impact of an exogenous shock to a manager’s career, in particular the business cycle at the career starting date. Economic conditions at the beginning of a manager’s career have lasting effects on the career path and the ultimate outcome as a CEO. Those CEOs who begin their careers during recessions take less time to become CEOs, but end up heading smaller firms, receiving lower compensation, and being more likely to rise through the ranks within a given firm rather than to move across firms and industries. Moreover, managers who start in recessions have more conservative management styles once they become CEOs. Firms led by these managers spend less in capital expenditures and R&D, have lower leverage, are more diversified across segments, show more concern about cost effectiveness, and have lower stock return volatility. While looking at the role of early job choices on CEO careers is more endogenous, the results support the idea that certain types of starting positions are feeders for successful long-run management careers: Starting in a firm that ranks within the top ten firms from which CEOs come is associated with favorable outcomes for a manager – these CEOs end up heading larger companies and receiving higher compensation.

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This paper was revised on May 17, 2012

Acknowledgments

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