Founder and CEO

Founder and CEO

A founder CEO is an individual who establishes a company and holds its chief executive officer (CEO) position. If the firm’s CEO is not a founder or the founder CEO is succeeded, the firm is said to be led by a non-founder CEO or successor CEO.

Research has highlighted differences between the founder and non-founder CEOs that influence firm performance. These differences include stock performance, an equity stake in the firm, managerial incentives, research and development investment, and outlook towards mergers and acquisitions.

According to scholars such as Rüdiger Fahlenbrach, founder CEOs outperform their non-founder CEO counterparts in both stock performance and market valuation. They tend to take a long-term view and consider their firm their lifetime achievement, resulting in them holding a larger equity stake in their firm than non-founder CEOs. Darius Palia, S. Abraham Ravid, and Chia-Jane Wang developed this idea further, concluding that founder CEOs become less influenced by managerial incentives as they continue to devote resources to their firm, whereas the opposite is true for non-founder CEOs.

Non-founder CEOs are less invested in their company and are more likely to tailor their performance according to managerial incentives. Scholars such as Joon Mahn Lee, Jongsoo Jays Kim, and Joonhyung Bae, concluded that founder CEOs continually invest in new projects and explore new knowledge to benefit the firm in the long term. This suggests a link between founder CEOs and greater innovation investment. In terms of mergers & acquisitions, Fahlenbrach, along with other scholars, concluded that founder CEOs partake in a greater number of acquisitions within their core business line each year, as they have a greater risk tolerance. it is suggested that this additional risk taken on by founder CEOs stems from overconfidence at the CEO level, which some scholars have measured through their tone in tweets, regarding both earnings calls and personal statements, and their option exercise behavior relative to non-founder CEOs.