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CEO's functional experience and firm performance based on text mining
Xiaohong Huang1, Jiangwei Liu2, Liangyu Min3
1School of Logistics and Management Engineering, Yunnan University of Finance and Economics, Kunming, China.
Plos One
|March 17, 2023
Summary
Chief executive officers' (CEOs) broad functional experience initially harms firm performance, but improves with more experience, showing a U-shaped curve. Deep functional experience initially boosts performance, then declines, forming an inverted U-shape.
Area of Science:
- Business Administration
- Organizational Behavior
- Strategic Management
Background:
- Scholarly attention on chief executive officer (CEO) functional experience and firm performance is high, yet comprehensive measurement remains limited.
- Existing research often overlooks the nuanced impact of diverse functional backgrounds on corporate outcomes.
- Public databases lack detailed CEO functional experience metrics, hindering in-depth analysis.
Purpose of the Study:
- To investigate the distinct impacts of CEO functional breadth and depth on firm performance.
- To apply upper echelons theory to analyze the relationship between CEO experience and corporate success.
- To provide empirical evidence on optimal CEO experience profiles for enhanced firm performance.
Main Methods:
- Utilized named entity recognition to extract deep-level curriculum vitae (CV) data for CEOs from Chinese listed companies (2006-2020).
- Quantified CEO functional breadth (richness of experience) and functional depth (tenure and hierarchical level).
- Employed statistical analysis to examine the relationship between CEO experience metrics and firm performance.
Main Results:
- CEO functional breadth shows a significant U-shaped relationship with firm performance (negative initial impact, positive subsequent impact).
- CEO functional depth demonstrates a significant inverted U-shaped relationship with firm performance (positive initial impact, negative subsequent impact).
- Both breadth and depth of CEO experience have complex, non-linear effects on firm performance.
Conclusions:
- The study reveals non-linear relationships between CEO experience dimensions and firm performance, challenging linear assumptions.
- Findings offer valuable insights for executive recruitment, emphasizing a balance between breadth and depth in CEO selection.
- Extends the literature by providing a micro-level analysis of CEO functional experience and its strategic implications.
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