DOES IT MATTER whether a CEO is a hometown
native or has relocated from elsewhere?
Absolutely, say a team of finance
and accounting professors in China.
They find that nonlocal CEOs are more
likely than their homegrown counterparts
to favor short-term financial fixes.
George Yang of the Chinese University
of Hong Kong, Shufang Lai of Southern
University of Science and Technology,
and Zengquan Li of Shanghai
University of Finance and Economics
examined data related to 2,000 CEOs at
S&P 1500 U.S. firms from 1992 to 2012.
The scholars wanted to know whether
CEOs with local ties were less likely
than nonlocal CEOs to succumb
to “managerial myopia,”
which refers to a CEO’s
decision to cut research and
development spending to
offset short-term decreases
in company earnings.
Local CEOs were 25.5 percent less
likely to decrease R&D spending than
nonlocal CEOs, even if doing so would
offset slight drops in earnings. Firms
with local CEOs also paid 7.3 percent
more taxes to their states than firms
with nonlocal CEOs, suggesting local
CEOs felt a greater sense of social responsibility
to their regions.
The more connected CEOs were
to local religious, civic, and political
organizations, the less likely they were to
“focus on near-term payoffs,” says Yang
in CUHK’s China Business Knowledge.
“Hiring a local CEO gives an advantage
to a firm by elevating the CEO’s longrunning
concern for her reputation.”
Read the working paper “East, West, Home’sBest: Are Local CEOs Less Myopic?"