CEO Locality and Employment Stickiness

Abstract

We explore whether CEOs’ hometown identity involves labour adjustment decisions. We document that local CEOs, with their hometown ties, reduce employment to a lesser degree following sales downturns than nonlocal CEOs. This finding suggests that local CEOs’ strong local attachments motivate them to prioritise employee interests and build good reputations, which create private benefits or reserve future career paths in their hometowns. Our findings are more pronounced in areas where local connections are highly valued, thus supporting our argument. We further find that the retention efforts of local CEOs are related to low future performance. We extend the cost stickiness literature by documenting that CEOs’ place attachment influences resource adjustment decisions, particularly regarding labour, which eventually influences subsequent performance.