Three Essays on Foreign CEOs

Abstract

This thesis examines the impact of foreign CEOs on the corporate policies of publicly traded US companies. Using a sample of S&P 1500 firms from 2000 to 2017, this thesis exploits the variation in foreign CEOs’ international experience and national culture to analyse their impact on firm risk, capital structure decisions and corporate acquisitions. The first study examines the impact of foreign CEOs on the risk taking behaviour of their firms and management practices. The results show that, compared with domestic CEOs, firms managed by foreign CEOs have higher stock return volatility and idiosyncratic risk. We find that firms managed by foreign CEOs invest more in intangible assets and are more likely to do mergers and acquisitions. We document that foreign CEOs are not a homogenous group and that the legal origin of foreign CEOs matters in their risk taking behaviour. The results show that foreign CEOs who come from countries with better creditor rights take fewer risks than those from poor creditor rights countries. The results show that foreign CEOs have a significant impact on firm risk and corporate policies. The second study exploits the variation in the cultural background of foreign CEOs to analyse its impact on capital structure decisions. Using the cultural measure of individualism versus collectivism, we find that firms managed by foreign CEOs from individualistic cultures have higher leverage. We next examine the channels through which individualistic CEOs impact a firm’s capital structure and find that individualistic CEOs are more likely to issue debt than equity and adjust their target leverage at a faster speed than firms managed by foreign CEOs from a collective culture. The empirical evidence shows that firms managed by individualistic CEOs tend to have more short debt maturity. The results are robust to endogeneity checks using propensity score matching and the instrumental variable approach. The impact of individualism on capital structure decisions is also observed for firms managed by American CEOs born in individualistic states. Following the literature that international experience impacts manager’s strategic choices, the third study examines the impact of foreign CEOs on corporate acquisitions. The results show that foreign CEOs are more likely than domestic CEOs to do mergers and acquisitions (M&As). We find that firms managed by foreign CEOs are more likely to acquire targets in high-tech industries and targets operating in different 2-digit Standard Industry Classification (SIC) code industries. The results show that foreign CEOs are more likely to do cross border acquisitions. We examine the value implications of M&As undertaken by foreign CEOs and find that announcement returns for firms managed by foreign CEOs are lower. Overall, the results show that foreign CEOs have a significant impact on M&A outcomes.