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Executives and Firm Markups
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How do individual CEOs affect firm profitability? We decompose firm markups into CEO and firm components using a two-way fixed effects model with corrections for limited mobility bias. CEO effects account for 10-14% of markup variance. Event studies and a triple-difference design around exogenous departures (deaths and retirements) show that high-markup CEOs reduce variable costs while maintaining revenue and employment. Two independent sources identify cost discipline rather than pricing as the channel: an analysis of 79,490 earnings call transcripts shows that high-markup CEOs emphasize operational efficiency in their cost language but are indistinguishable from peers in their pricing language; and product-level quantity data from India locate the CEO markup premium on the cost side, with marginal costs significantly lower under high-markup CEOs and the price coefficient statistically indistinguishable from zero. CEO effects are twice as large in professionally managed Indian firms (14.6%) as in family-promoter firms (8.3%), consistent with market-based selection producing wider dispersion in executive quality than family succession.
Title: Executives and Firm Markups
Description:
How do individual CEOs affect firm profitability? We decompose firm markups into CEO and firm components using a two-way fixed effects model with corrections for limited mobility bias.
CEO effects account for 10-14% of markup variance.
Event studies and a triple-difference design around exogenous departures (deaths and retirements) show that high-markup CEOs reduce variable costs while maintaining revenue and employment.
Two independent sources identify cost discipline rather than pricing as the channel: an analysis of 79,490 earnings call transcripts shows that high-markup CEOs emphasize operational efficiency in their cost language but are indistinguishable from peers in their pricing language; and product-level quantity data from India locate the CEO markup premium on the cost side, with marginal costs significantly lower under high-markup CEOs and the price coefficient statistically indistinguishable from zero.
CEO effects are twice as large in professionally managed Indian firms (14.
6%) as in family-promoter firms (8.
3%), consistent with market-based selection producing wider dispersion in executive quality than family succession.
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