The effect of CEO-specific heterogeneity on firm’s policies: Empirical evidence from Norwegian companies

Abstract

This study aims to investigate whether CEO heterogeneous characteristics influence a company’s performance and shape its corporate behavior. The focus is on non-listed Norwegian firms and such observable characteristics as CEO’s gender, age, tenure, and ownership. The study closely follows the approach undertaken by Bertrand and Schoar (2003). We find that the external validity of their results holds as manager fixed effects are statistically and economically significant after controlling for firm and year fixed effects as well as time-varying firm characteristics. We also find that, on average, longer-tenured CEOs seem to be more conservative in their decisions and older CEOs who have a higher stake in the company appear to be positively linked to a company’s performance. We identify that heterogeneity in decisions related to interest coverage and dividend payout ratio is attributed to some other observable or unobservable traits than the ones analyzed in this study. Our hypothesis that, in the case of Norwegian companies, CEO effects should matter less for performance and influence company policies to a lesser degree compared to US firms is refuted. We believe it might be due to the specificity of our sample i.e., non-listed companies with high ownership concentration.