How a CEO’s Cultural Background Impacts Firm Performance

Duc Duy Nguyen is a lecturer at the University of St Andrews School of Management; Jens Hagendorff is professor of finance at the University of Edinburgh; and Arman Eshraghi is associate professor of finance and accounting at the University of Edinburgh. This post is based on their recent article, forthcoming in the Review of Financial Studies.

Understanding if our individual cultural backgrounds shape the everyday decisions we make is a topic of great interest and resurgent public debate. The commercial success of genealogy websites such as and television shows such as “Who Do You Think You Are” bear testimony to importance that the public attach to knowing who their ancestors are.

In our study we ask: do the cultural values top managers inherit from their ancestors affect their decision-making today? The main challenge of studying culture is that it is easily confounded with economic and institutional factors that, much like culture, vary across countries. The key innovation of our study is that we focus on US-born CEOs who are the children or grandchildren of immigrants. For ease of reference, we call these CEOs Gen2-3 CEOs. The key point is that, while Gen2-3 CEOs are exposed to the same legal, social and institutional influences as other US-born CEOs, they possess a distinct cultural heritage. Specifically, the cultural preferences and beliefs of Gen2-3 CEOs are likely to bear the cultural mark of the countries from which their parents or grandparents have emigrated.

Our research examines whether the cultural values prevailing in a Gen2-3 CEO’s ancestral country of origin shape firm policy choices and performance in a dynamic industry environment.

Our ancestral data and study design

Our study design starts with the type of detective work that can be found on genealogy shows such as “Who Do You Think You Are”. We hand-collect data on the country of origin of a CEO’s ancestors from, the world’s largest genealogy database, which covers nearly 20 billion family histories. We trace a CEO’s ancestors by using his or her name, birthplace, and birth year to identify the parents, before using the same technique to identify the grandparents, and so on. This allows us to map the family tree for up to six generations. For each CEO, we know the country that his or her ancestors immigrated from, and how many generations ago the ancestors moved to the US. As an example, Jamie Dimon, the CEO of JP Morgan, is a third-generation descendant of Greek immigrants to the US.

However, one must be careful with causal inferences in empirical research. CEOs will be appointed because of the attributes and skills they bring to the company and some of these may well correlate with a CEO’s cultural background. We need to account for this matching effect to causally attribute a CEO’s cultural heritage to firm outcomes. In order address this issue, we rely on a setting where firms face an unexpected shock to competition that forces managers to respond and act on their feet. In such a setting, it is reasonable to partly attribute how firms sail through the storm to the CEO. If the cultural heritage of a CEO matters to corporate outcomes, we should observe systematic differences across firms led by CEOs with different ancestry following shocks to competition. In short, by observing firm behavior around competitive shocks, we are able to single out CEO-specific effects from other confounded effects.

Our study focuses on banks since the banking industry experienced a series of profound shocks to competition in the 1990s. We use the Interstate Banking and Branching Efficiency Act (IBBEA) of 1994 that legalized interstate branching in some US states such as Michigan or North Carolina and increased competitive pressures in these states. IBBEA therefore introduced substantial variation in industry competition along both geographic and temporal dimensions.

What do we find?

We analyse data for nearly 615 CEOs who serve 441 publicly-listed US banks between 1994 and 2006. In our model, we account for various other differences besides cultural heritage that might affect bank performance. This large set of variables includes CEO, board, bank, and location characteristics as well as firm fixed effects. We also conduct several additional tests to rule out alternative explanations. Regardless of the regression techniques and empirical specifications, we obtain consistent results.

We find that banks led by CEOs who were children and grandchildren of immigrants are associated with superior performance when faced with higher industry competition (that is, following the deregulation of interstate branching). Furthermore, when examining the different generations of immigrants that a CEO belongs to, we observe a monotonic reduction in bank performance under competitive pressure as we move from CEOs who are second-generation descendants of immigrants to later generations. Intriguingly, the Gen2-3 effects we uncover is uniquely linked to the CEO and cannot be detected for other senior executives (such as the CFO). This is consistent with the intuition that the CEO is the captain in charge of sailing the firm through competitive pressures. In short, our results indicate systematic differences in the competitive behavior of Gen2-3 CEOs vis-a-vis other CEOs.

We further find that not all recent descendants-of-immigrants outperform under pressure. The effect varies by the country of origin of a CEO’s ancestors. Our findings imply that CEOs whose ancestors were from Germany, Italy, Poland and Russia are associated with better bank performance under competitive pressure. CEOs with British or Irish ancestors do not display different performance from the rest of the sample.

These findings hint at the role of culture in explaining the descendants-of-immigrants effect. To confirm this, we trace the performance effect linked to Gen2-3 CEOs to cultural values that prevail in their ancestral country. We show, using a broad range of cultural values developed by Geert Hofstede, Shalom Schwartz, the GLOBE Project, and the World Value Survey, that most cultural dimensions explain competitive performance.

Specifically, competitive performance is positively related to the cultural dimensions Restraint, Long-term orientation, Uncertainty avoidance, and Harmony and is negatively related to Individualism, Performance orientation, Importance of freedom, Intellectual autonomy, Importance of selflessness, and Patriotism. These values mainly revolve around reflecting group- vs. self-oriented cultures.

Our findings may appear surprising at first sight as one usually equates a higher competitive performance with, say, aggressiveness. To understand this, we explore how a CEO’s cultural values explain firm-specific policy choices. When competition intensifies, we find that banks led by CEOs whose cultural values emphasize group-orientation make more cautious, but superior, investment decisions. Specifically, they (1) engage in fewer acquisitions, (2) realize higher acquisition announcement returns, (3) display lower risk, and (4) are more cost-efficient.


Overall, our work is consistent with the view that the culture of a CEO’s ancestors influences his or her decision-making behavior, firm policy choices and performance in the present time. We do not, however, interpret our findings as showing that particular cultures are superior to others. How cultural values affect performance depends on the contextual environment. For instance, our results show that culturally-inherited risk aversion is value-enhancing during financial crises, but can cause the firm to lose out on opportunities during boom times. The strengths and weaknesses of all cultures are context dependent.

The complete article is available for download here.

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