Founder and professional CEOs' performance differences across institutions: A meta-analytic study

Research Summary

We examine the effect of institutions on performance differences between founder and professional CEOs. We do so by integrating an institutional perspective with findings from the literatures on CEOs' managerial discretion and cognition. Specifically, we theorize that in informal institutional environments characterized by high power distance and individualism and in formal institutional contexts characterized by low regulatory and political quality, differences in cognitive styles lead founders to enjoy performance advantages over professional CEOs. The results of our meta-analysis of 117 studies across 22 countries conducted between 1987 and 2020 support our predictions. We conclude by discussing the implications for research and policy regarding institutional development and the governance of entrepreneurial firms.

Managerial Summary

We develop a framework to examine the influence of the institutional environment on performance differences between founder and professional CEOs. Our results show that founder CEOs experience performance advantages across high discretionary institutional settings when compared with professional CEOs. Boards may use this information to guide their recommendations or decisions related to founder CEO succession or retention. Moreover, firms pursuing international strategies such as joint ventures may also use this information as one of their search criteria while shortlisting their potential prospect partners.