CEO Origin and Performance Consequences: Evidence from New Zealand Firms
Degree GrantorUniversity of Canterbury
Degree NameMaster of Commerce
This thesis examines the relationship between Chief Executive Officer (CEO) origin and performance consequences in a New Zealand (NZ) setting. The NZ setting is unique because previous research on this topic is from the United States (US) and in one instance the United Kingdom (UK); and the NZ setting is intriguing because it has four important institutional differences: NZ directors hire outsiders much more frequently than their US and UK counterparts; NZ has no discernible trend in the frequency of outsider appointments over time, whereas the US has a marked upward trend; average CEO tenure in NZ is much shorter than that observed in the US or globally; and CEO succession occurs in relatively small firms. These four differences suggest that the NZ CEO market has some unique dynamics and perhaps unique performance consequences. This thesis fills a gap in our knowledge of executive and director practice in NZ and contributes to the CEO origin debate by analysing a new setting.
Using a hand collected sample of 162 CEO appointments from NZ firms between 1991 and 2008, I find some significant performance differences between insider and outsider CEOs. Outsiders elicit a higher abnormal return around the appointment announcement: the 1-day and the 3-day differentials are approximately 1.2% and 1.7% respectively. In contrast, insiders create more shareholder wealth during their first three years in charge: insiders increase the appointing firm’s market-to-book ratio by approximately 27 percentage points more than outsiders. I also discover that insiders are around 37 percentage points more likely to last at least three years in the job. The main difference between these findings and those from the US and UK is that insiders easily outperform outsiders in the medium term. Also, I document an intuitive finding for grey insiders: grey insiders by definition possess a blend of insider and outsider attributes and perform between insiders and outsiders on all three performance measures. These findings are robust to various controls and subsamples, and there is also some evidence that the market-to-book finding is robust to selection bias.