The cultural values CEOs inherit from their parents and grandparents can affect their decision-making and their firms' performance, with some inherited cultural values being linked to better competitive performance, according to a study published in The Review of Financial Studies.
To determine whether the cultural values a CEO inherits from their parents and grandparents affect their decision-making and company performance, the study authors gathered data from a sample of 610 U.S. bank CEOs who were born in the U.S.
These CEOs were separated into three groups: those whose parents were immigrants to the U.S., those whose grandparents were immigrants to the U.S., and those whose parents and grandparents were born in the U.S. The CEOs led 441 public U.S. banks between 1994 and 2006. Among these executives, 293 were either children or grandchildren of immigrants, which the researchers called second- and third-generation CEOs.
The study authors then gathered data on the CEO's ancestors from ancestry.com, a genealogy database that covers roughly 20 billion family histories. They traced a CEO's ancestors by searching his or her name, birthplace and birth year to identify their parents and then used the same technique to identify their grandparents.
Here are four insights from the study.
1. Banks led by CEOs who are the children and grandchildren of immigrants were associated with superior performance on average, where performance was measured by bank Return on Assets. The study found this superior firm performance was strongest for second-generation CEOs, and the effect weakened with subsequent generations.
2. The researchers found these cultural heritage effects were uniquely linked to a company's CEO and could not be found in other senior executive roles. The authors repeated the analysis for the CFOs of each bank and other top management roles but did not uncover a link between their cultural heritage and firm performance.
3. Not all recent descendants of immigrants outperformed under pressure, the study found, with effects varying by where a CEO's ancestors were from. The findings suggested CEOs whose ancestors were from Germany, Italy, Poland and Russia were linked to better bank performance under competitive pressure. On the other hand, CEOs with British or Irish ancestors did not indicate different performance from the rest of the sample.
4. "Overall, our work is consistent with the view that the culture of a CEO's ancestors influences his or her decision-making, firm policy choices and ultimately the firm's performance," the study authors wrote in Harvard Business Review. "We do not, however, interpret our findings as showing that particular cultures are superior to others. The strengths and weaknesses of all cultures are context dependent."