Made in CEO Factories

Abstract

We find that over 20% of CEOs appointed at S&P 1500 firms from 1992 to 2010 came from 36 CEO factories. CEOs originated from CEO factories, factory CEOs, have significantly higher cumulative abnormal returns at the appointment announcement than do non-factory CEOs. We show that CEO factories provide unique leadership development opportunities through which executives acquire general managerial skills. In their first three years, factory CEOs tend to discontinue large, underperforming segments, improve the performance of remaining segments, and invest heavily in R&D. As a result, firms hiring factory CEOs exhibit better long-run performance and award greater CEO compensation.