We examine the employment histories of CEOs at large US companies and find that a disproportionately large number of CEOs are originated from a small number of high-profile firms that are praised for their superior abilities in training and developing corporate leaders, referred to as CEO factories. Specifically, 20.5% of all CEOs appointed at the S&P 1500 firms from 1992 to 2010 came from 36 CEO factories. CEOs originated from those CEO factories are referred to as factory CEOs. Appointments of factory CEOs are associated with significantly larger announcement returns than the appointments of CEOs without work experiences at a factory firm. The abnormal announcement returns are larger for CEOs who had a longer tenure at a CEO factory and for CEOs who joined the new firm shortly after their departure from a CEO factory, suggesting that CEOs accumulated valuable human capital while working at the CEO factory. We further show that factory CEOs tend to adopt investment and financing policies similar to those they had implemented or witnessed at the CEO factory. The choice of a factory CEO appears to be a decision made by the board of directors, taking into account the portfolio of the CEO's managerial skills and the imprints of the CEO factory. In the long run, firms hiring factory CEOs exhibit better operating performance and award those CEOs with greater compensation.
Cai, Ye; Sevilir, Merih; and Yang, Jun, "Are They Different? CEOs Made in CEO Factories" (2015). Finance. 3.