- Title
- The use of variance decomposition in the investigation of CEO effects: how large must the CEO effect be to rule out chance?
- Creator
- Fitza, Markus A.
- Relation
- Strategic Management Journal Vol. 35, Issue 12, p. 1839-1852
- Publisher Link
- http://dx.doi.org/10.1002/smj.2192
- Publisher
- John Wiley and Sons
- Resource Type
- journal article
- Date
- 2014
- Description
- Variance decomposition analysis is often used to examine the degree to which CEOs influence their companies' performance (the so-called CEO effect). Such studies play an important role in a body of literature that investigates the effect of leadership on organizations. In this paper, I argue that these previous studies have an important underlying flaw. Empirically, these studies wrongly attribute the performance effect of randomness - of chance - to the CEO. I demonstrate how randomness can affect the measured effects in a variance decomposition analysis, and I show that this is especially problematic for the measurement of CEO effects. I demonstrate how this results in a greatly inflated CEO effect and develop an approach to correct for it.
- Subject
- variance decomposition; CEO effect; chance; sources of performance heterogeneity; CEOs
- Identifier
- http://hdl.handle.net/1959.13/1294799
- Identifier
- uon:18872
- Identifier
- ISSN:0143-2095
- Language
- eng
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