F -F O F P :E S&P 500

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THE JOURNAL OF FINANCE * VOL. LVIII, NO. 3 * JUNE 2003

F d g-Fa O e h a d F Pe f a ce:
E de ce f he S&P 500

RONALD C. ANDERSON a d DAVID M. REEB*

ABSTRACT

We e ga e he e a be ee f d g-fa e h a d f e -
f a ce. We f d ha fa e h b h e a e a d b a a ; fa-
e a e e e e- h d f he S&P 500 a d acc f 18 e ce f
a d g e . C a c ec e, e f d fa f e f
be e ha fa f . Add a a a e ea ha he e a be-
ee fa h d g a d f e f a ce ea a d ha he fa-
e be e e a CEO, e f a ce be e ha h de CEO .
O e a , e a e c e h he h he ha ha e-
h de a e ad e e affec ed b fa e h , gge g ha fa
e h a effec e ga a a c e.

FOUNDING-FAMILYOWNERSHIPAND CONTROL b c U.S. f c e ce ed

a a e eff c e , a he e ea , a e f ab e e h c e ha
d e ed e h . Fa a a d Je e (1983) e ha c b g e h
a d c a c ce a ed ha eh de e cha ge f f a e
e . De e (1983) a g e ha ch e a ch e ec a c -
a d he eb d a ca ce e ce a a f f ab e ec . Sh e -
fe a d V h (1997) b e e ha he a ge e a c a ed h e -
g ha e c gh de e de ce ha c g ha eh de
ee e ac a e be ef f he f . M e ge e a , f h a ge,
d e f ed e ch a f d g fa e a f g a f be-
ca e he a e ab e e a a e he f a c a efe e ce h h e f de
e .1 Fa e a f e e ec e a age e fa

*A de f The K g d Sch f B e a A e ca U e , a d Reeb f

C e h e C ege f C e ce a he U e f A aba a. The he f c e f
A Ag a a , A g e D , P.C. K a , Sc Lee, Le gh R dd c , M che R be, a a -
efe ee, a d he ed , R c G ee , a e g a ef ac edged. A e a e
.

1B a , Pa, a d Sh e fe (2002) gge ha ega eg e ha cce f

ha eh
de ea h e a , c ed f d g-fa c e
ab e. La P a, L e -de-S a e , a d Sh e fe (1999), Bebch c (1999), a d Sh e fe a
W fe (2002) d h ega ec f de ha eh de ac e
c e. Paga a d R e (1998) e h he e e ce f he a ge b c h de c
d ce he c ce f c g ha eh de ea h e a . Be ed e a d W fe
(2000) a a e c e he d f , h e M c , S a ge a d, a d Ye g (2000), J h e
(2000), A de , Ma , a d Reeb (2002), a d Facc a d La g (2002) de add
gh fa e h .

1301

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1302 The J a f F a ce

e be , gge ga e c ed ab f h ch b a a f ed a d
ca ab e a e , e a ead g c e e d ad a age e a e -
fa f . O e a , a ecd a acc a d e a e gge ha c -
ed f d g-fa e h U.S. c a a ga a a f
ha ead f e f a ce (e.g., M c e a . (2000)).
The ha a ge, c ce a ed ha eh de a e he e e eff c e
a e a e . De e a d Leh (1985) e ha c b g e h
a dc ca be ad a age , a a ge ha eh de ca ac ga e a -
age a e a .F a ce, he fa ' h ca e e ce, a ge d-
e f ed e ,a dc f a age e a d d ec ace
he a e a d a f e ce a d he f . Be d
ga dc ad a age , Ja e (1999) ha fa e ha e ge
e e h , ead g g ea e e e eff c e c . S e (1988, 1989)
h h he e e ce f ha eh de h ea e g e e h
ca ga e he ce e f c e e dec b a age . If
fa e ha e ad a age d c ga d g a age , e e ded -
e e h ,a d de ec a ed edge, he e f he he
f d g-fa e e ce h de fac a e f e f a ce bec e a e -
ca e.
We e e he e a be ee f d g-fa e h a df e f -
a ce a ge b cf . U g acc ga d a e ea e ff e -
f a ce, e c d c a e- e e c - ec a c a f fa a d
fa f .O a a a e ga e he a c a be ee ac e
fa c (h d g he CEO )a df e f a ce. F a , e e -
a e he ac f he a ge e b c h de he e e ce f fa
e h a d he d c e a c be ee fa e h a dc gh
f e f a ce. T he be f edge, h he f a ge a e d
e a e he e a be ee f d g-fa h d g a d e f a ce
a ge U.S. f .2
U g he S a da d & P ' 500 f f 1992 h gh 1999, e b e e ha
f d g fa e a ea e ae a d a ca f e . Fa f
c e e 35 e ce f he S&P 500 I d a a d, a e age, fa e
ea 18 e ce f he f ' a d ge . Fa c a d f -
e ce he S&P 500 ca be e e ee e e ha he e e h e e g-
ge . F e a e, f he e he fa d e ha e gh a
e h , he c f b a d ea 2.75 e g ea e ha he e
a e d d ca e.3 Sh e fe a d V h (1997) gge ha , ch c c -

2J h e a . (1985), M c , Sh e fe , a d V h (1988), De a d De(1994), a d McC -

a gh e a . (1998) e ga e he b e f fa f he e a fa e be he CEO
( .e., ac ec f he f ). We f d h b e acc f 45.7 e ce f he fa f
he S&P 500. I h d , ec de b h a e a d ac e c a d f d ha a b-
a a f he e f a ce d ffe e ce a c a ed h a ec .
3 S a (1999, 2001) d c e a c a e a e f S&P 500 f he e he fa e c -
gh a e b a a g ea e ha he e h e e .F e a e, Ne ee e
ha a ea h ee e d g he a e 1990 , he Cha d e fa (T e M ) g " ee
dea " ha e e a a ab e he ha eh de .

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 F d g-Fa O e h a dF Pe f a ce 1303

a ce , he ab e a f he fa b a a e e e e
g ea e . Th , a he CEO f He e -Pac a d ece ed, f d g fa e
ha e c ce a d e e f he , ch a ab a d ca a e e a-
, ha a a g h he e e f he e he f ( ee The
Wa S ee J a (2001)).
C a he ha fa e h de e a, ef d ge
f e f a ce fa f ha fa f .4 C gf d -
a df cha ac e c , a a gge ha f hc ed
f d g-fa e e ce e h b g f ca be e acc ga d a e e -
f a ce ha fa f . We f d he e e a e ea e affec ed b
he c de a f he b c h de b he d c e a c be ee he fa-
' e h a dc gh . We a e e e de ce ha he e a
be ee f d g-fa h d g a df e f a ce c; e -
f a ce f c ea e a fa e h c ea e b he dec ea e h
c ea g fa e h . D ffe e a g be ee g (f age e ha
50 ea ) a d d fa f (f age g ea e ha 50 ea ), e f d ha b h
g e h b be e f e f a ce e a e fa f .
O e ga a d ca e d ffe e a e f a ce fa f ba ed
CEO a . S ec f ca , e f d ha CEO h a e fa e be (f de
f de de ce da )e hb a e ea acc g f ab
ea e . Ma e e f a ce h e e a ea be be e he e e ce
ff de CEO a d de (h ed-ha d) CEO ; f de de ce da e ga
CEO ha e effec a e e f a ce.
A h gh e ha fa e h ga e a age a ,
a a e a ee a a f he e f a ce d ffe e ce ha fa e
e f gf ( f e ee g e f a ce) a e e e e
he ha e a d e he f .T d g h be ee he e a e a e e a a-
, e e e a - a ab e (IV) eg e e a e he a e f
ca a be ee fa e h a df e f a ce. The e a e f
he IV eg e a ec e h a e ha fa e h
a c a ed h e f e f a ce. S , b h he age c a d fa -
e e c dc b e he d c e ed d ffe e ce be ee fa a d
fa f .
I agg ega e, he e gge ha fa f , h e he a fa e be
a h ed-ha d CEO, e h b e f e f a ce e a e fa
f .O e f b h fa e h a d fa CEO a e a ca
a d ec ca g f ca a da e b he c f he e h
g , e d ge e , d e g g fa c a d e h gh , a d a e a-
e a ab e ea e ,a e a c ce f h ba , e a c e a-
, he e eda c , e ,a d c ea .

4 Facc , La g, a d Y g (2001) d fa e h a dc Ea A a c a-
e a d e ha fa c ead ea h e a he e e ce f e ha
a a e f a ca a e .

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1304 The J a f F a ce

The e a de f h a e ga ed a f . Sec I e e a -
g e he ac f fa e h a d f e ce b cf . Sec
II d c e he da a a d de a a c . I Sec III, e de
e ca e . Sec IVe e he b e f he e , a d Sec-
V de a a a d c c de he a e .

I. F d g-Fa O e h a d F Pe f a ce
De e a d Leh (1985) b e e ha U.S. b c c a ca fea-
e a e a a f e h a d c he e fe a a age a he
ha f ag e ed ha eh de c a b e dec . Ye , Sh e fe
a d V h (1986) d c e ha a ge ha eh de a e c a d, a c -
a , e ha f d g fa e c e h d e a e a d b a d ea
ea 33 e ce f he F e 500 f . The e f d g fa e e e e a
e ca f ha eh de ha h d d e f ed f , a e g- e
e ( e ge e a ), a d f e c e a age e -
.5 A ch, fa e a e a c e e f e ce a d c -
e he f , e a ead g e f a ce d ffe e ce h fa
f .

A. The P e a C f Fa O e h

W h b a a e h f ca h f gh , f d g fa e ha e he -
ce e a d e a e ac ha be ef he e e a he e e e f f
e f a ce. F a ce, Fa a a d Je e (1985) h h a ge d e f ed
ha eh de c d e d ffe e e e dec e ea e a -
c ha eh de . D e f ed ha eh de a e e ed e a a e e e
g a e a e e ha a e he a e f he f ' e d a ca h f .
La ge c ce a ed ha eh de h e e , a de e g ea e be ef f -
g b ec e ch a f g h, ech g ca a , f a
ha f e ha c g ha eh de a e.
Ba c a a d H de e (1989) e ha a ge e h a e a ed ce he
bab f b dd g b he age , he eb ed c g he a e f he f . The
fa ' e e ec g a age a d d ec ca a c ea e ed e f
h d a e ca gc f he f , gge g g ea e a age a e -
e ch e a d e f a e ea e fa f .C e h
h a g e , G e -Me a, N e -N c e , a d G e e (2001) e ha fa-
e h a dc , S a hf , a ca ed h g ea e a age-
a e e ch e . Sh e fe a d V h (1997) gge ha e f he g ea e
c ha a ge ha eh de ca e e a g ac e a age e
e e f he a e ge c e e a f ed he f .6 O e ca

5We f d ha fa e ha a ea b h F be ' Wea h e A e ca S e a d he

S&P 500 ha e e 69 e ce f he ea h e ed he f .
6 A e a e , fa e c d fac a e cha ge f c a d e h ( ee Sh e fe
a dV h (1986)).

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 F d g-Fa O e h a dF Pe f a ce 1305

ha f e f a ce e e ef de fa f ea e fa
f .
Fa e a ea ca ab e f e a g ea h f he f h gh
e ce e c e a , e a ed- a a ac , ec a d de d .
F a ce, a ece eca a a a a F d M c ea ed he
fa ' g e h d g c e a he f ' he
ha eh de , ead g de ead c c ha he b a d' a be ef ed
he fa a he e e e f he c a a (Schac (2001)). DeA ge a d
DeA ge (2000) gge ha he fa ' de e f ec a d de d ca ac
he f ' ca a e a a , ead g e a g a d c ce
e f a ce.
B a , G b, a d Pa (1997) b e e ha fa e ac g he
beha f ca ad e e effec e ee eff a d d c . F he e,
Sh e fe a d S e (1988) e ha fa e ha e ce e ed b e
e f e ee he e e . I ge e a , e a e d ca e ha
a ge ha eh de ch a f d g fa e e e ha a age e -
-e he h gh he e e h gh fe a a age - e e fa
e e (DeA ge a d DeA ge (2000)).7 Wh e fa e a e ac
ha a e he e a , a f he e a e ac e a
ead b a ce e g f e f a ce e a e -
fa f .

B. The P e a Be ef f Fa O e h

A h gh e a e gge ha fa e h a d c ca ead
f e f a ce, fa f e ce ca a de c e e ad a -
age . De e a d Leh (1985) e ha c ce a ed e ha e b a -
a ec c ce e d h age c c f c a d a e f a e.
S ec f ca , beca e he fa ' ea h c e ed f e fa e, fa-
e a ha e g ce e a age a d e he f ee-
de be he e h a , a c ha eh de . If g e-
e edge f he f ' ech g , fa e e a de e
e gh beca e he e g h e e e he e f he a g he
f ' ea g c e. F he , he ega ec acc ded ha e-
h de he U ed S a e gge ha h e fa e a a g a e e ce
he f ( a he ha e g ) a de a c e e ad a age he
f (e.g., B a , Pa , a d Sh e fe (2002)).
F d g fa e a f e a a a g- e e e ce he f . The
D P fa , f a ce, ha he d a b a a e a e (a ea 15 e -
ce ) f e 200 ea he f bea g he a e. A ch, fa e e -
a ha e ge h ha he ha eh de , gge g a g e
e g- e ec ea e h e a age a h . S e (1988,
1989) h ha f ha ha e ha eh de h ge e e h

7 De e a d Leh (1985) de c be a c a a ce (e.g., D e ) he e fa e ha e

de ed - ec a be ef b f e c g f ce a ha e e f a -
g b ded f he .

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1306 The J a f F a ce

ffe e a age a a a d a e he ef e e e f g g d e -
e b c e ea g . Ja e (1999) de a e a - e d d-
e h fa e h de ce e e acc d g he a e
e ( .e., e NPV ec ) a d gge ha fa f e e eff -
ce ha fa f beca e he fa e d a he f c-
ceed g ge e a . Ca (1999) a d Cha (1999) c c h h a g e
b g ha f d g fa e e he f a a a e a he
de ce da a he ha ea h c ed g he fe e .F a
h a a c ce f fa e , gge g he a e e a g-
e a e a a ad ca e .8
F d g fa e a face e a c ce a gf he fa ' -
a ed e e ce he f a d effec h d a e . The g- e a e f
f d g-fa e h gge ha e e a b d e , ch a e
de f ca a , a e e e dea h he a e g e gb de a d
ac ce f ge e d fa f ha fa f . Th , he
fa ' e a e e c ea e ge - a g ec cc e e ce
f he f ea e fa f he e a age a d d ec e
a ea e c ba . A de e a . (2002) gge ha ec e-
e ce f fa e a a ga g- e e e ce ha he f e a
e c f deb f a c g c a ed fa f .
I , a ge, c ce a ed e ha e b a a ec c ce e
a ef e f a ce a d he f e ce a d e ca e ha e . If
f d g fa e de c e e ad a age he f , e e ec b-
e e be e f e f a ce fa f e fa f .

C. Ac e e Pa e Fa C

Ac cha ac e c f fa f ha fa e be f e e ea
he f ' CEO f he a age e (e.g., W a C. F d a
F dM ). Fa CEO a e a c a c ce .F , he fa ca
e ead a g he f ' e e h h e f he fa , gge g ha
he effec f fa e h f e f a ce a e e a ag f ed
he e e ce f a fa CEO. De e a d Leh (1985) a g e ha fa e
a e e e a age he he ca be e ee he c -
g a h gh he f a he ha h gh he ea h.9
Sec d, fa e be e a ace e f he e be he
CEO a he c fe c d g e ca ab e a d a e ed de, fe -
a a age . F e a e, Wa g Lab a e , ce a h gh f ab e a d
ab e b e h e de he c f he f ' f de , ffe ed e e e

S e (1988, 1989) d c e h a g h - e f ead d ffe e ac

ha a g g- e f a dh h h - e f c ead e a e e f
ha eh de .
9A g, C e, a d L (2000) e a e age c c a b e e a d f d ha age c
c a e h ghe h de a age , a d ha age c c a e e h a age a
e h .

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 F d g-Fa O e h a dF Pe f a ce 1307

de he f de ' .10 P e ea ch a a ef gge

ha f de ' e h b gaba a d he fa e be e e g he b -
e , e b a e (S e a d e f ab ge (1997)).
G e -Me a e a . (2001) e e d h a g e a d gge ha fa CEO
a e e a e acc ab e ha eh de a d d ec ha de, -
fe a a age . Sch e e a . (1999) e ha ac g fa e be a
CEO ca ead e e e he a f e fa e ec e beca e
e e, e ,a d ae a e ece a e e f a age e
.1
A h gh e c g e ec e ae a ab f fa e be ca be
b e a c, a fa CEO ca b g ec a a da b e he f ha
de a age d e . M c e a . (1988) gge ha f de CEO
b g a e a d a e-e ha c g e e e he f . M e e , Da ,
Sch a ,a dD ad (1997) a g e ha fa e be ac a e a d
a d, a ch, de f g h he f a d e f e f a ce a a e -
e f he e -be g. A de e a . (2002) gge ha he fa '
a ed e e ce he f a c ea e e f e a effec ha -
de ce e f fa a age ef e f a ce. C e e ,
ac e fa a c a f a age e ca e a ead e f -
a ce d ffe e a ea e fa f .

D. Re ea ch F c

O ce a e he e a be ee fa e h a d f e f -
a ce. The f a c a efe e ce f fa ha eh de , he e a e-
c a be ef , a d he e c ed adab f he c a gge ha
fa e h a e effec e ga a a f . Ye , a g e f e -
e ded h , fa a , a d c ce e e a gge fa e
ha e g ce e e e f f ab . U a e , he fa ' f -
e ce f e f a ce a e ca e ha e e ga e h d .
We e a e he ac f fa e h f e f a ce b add e g
f ec f c e . F , a e fa f e f ab e e a ab e ha
fa f ? Sec d, d e he e a be ee fa e h a d f
e f a ce d ffe be ee ge a d de fa f ? Th d, f f d g-
fa e h f e ce e f a ce, he e f a ce/ e h e a
ea e a a ge f fa h d g ? F h, d e he e e f fa e-
e fa e be ac g a CEO ega e ac f e f a ce? O
e ga de a a a f he e e , g f - e e da a
a ge b c aded U.S. f .

10 F f he f a Wa g Lab a e , ee Ke e (1992).
11J h e a . (1985) a d M c e a . (1988) gge ha f de CEO a e a c a ed
h g e f a ce ea he ca ee , e e f a ce a e ea , a d ha
fa e be CEO a e e e e ched he . A de e a . (2002) e
ha a h gh fa e be CEO ha e a h ghe c f deb e a e de a age
fa f , he e a e c f deb e a e fa f .

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1308 The J a f F a ce

II. Sa g a d Da a C ec
A. The Sa e
F e ga , e e he S a da d & P 500 f a f Dece be 31,
1992 a a e.12 We e c de ba a d b c e d e he d ff c
ca c a g T b ' f ba a d beca e g e e eg a e a
affec f e f a ce. F - ec f c c a ab e a e ca c a ed h da a
d a f he COMPUSTAT I d a F e . We a a c ec da a f
c a e a e e b a d c e, CEO cha ac e c , de e -
de b c h d g , a d fa a b e f 1992 h gh 1999 403 -
/ ba g f , ed g 2,713 f - ea b e a .
F Tab e I, a a gge ha fa f a e e e 72 e ce
f he SIC c de he S&P 500, d ca g ha fa e e a e a b ad a a
f d e . We e, h e e , ha fa f a ea be he e ae ga-
a a f be a d d d c (24), g a d b h g (27),
bbe a d ce a e a c d c (30), e ec c, ga , a d a a e -
ce (49), f d e (54), a a e a d acce e (56), ea g a d d g
ace (58), ce a e e a (59), a d b e e ce (73).13 Th gge
he a ce f c g f d aff a e ca a a .
I a a a , e c de d a ab e de e each -d g
SIC c de. I Sec IV, e c de a e a e a ache .

B. Mea g Fa O e h a d F Pe f a ce

O e f a c ce he de f ca f fa f . A e-
ea ch de ed g da ce h a ce a fa f , e e
he f ac a e e h f he f d g fa a d ( ) he e e ce f
fa e be he b a d f d ec de f fa f . F e f
ge f , h de e a a gh f a d ce he a e-
e de e he f de , h /he ed a e fa e be , a d he h d g .
H e e , e e a ge e a af e he f de , he fa e a d c de d -
a ea e ch a ec d h d c h e a a e a ge be
he a e. We e e de ce da e b e a g c a e h e f each
f a e. H e a e f Ga e B e Re ce , H e , a d
f d d a c a e .
Wh e he f ac a h d g f fa e be de a ea e f c
a he e h d e , d ffe e ce e h e e a g fa
f a e e e he f e ce ha fa e be e e he f .
F a ce, he Ab fa e ed a c g he Ogde C a
a f he e e he a e b he h d gh e ce f he

12 We ace c a f he ha he a e eg a ed e be f he 1992
S&P 500. A he beg g f a e (Ja a 1993), e ha e 403 f . A he e d f he a e
e d (Dece be 1999), e ha e 329 f a 19 e ce d - a e. I Sec IV, e e
b e e ba ed he b e f he a e ha ac e d g he f a e e d.
13 Th e a a ba ed d e h f e e f a d he e fa f
a e a ea 50 e ce f he f he d .

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 F d g-Fa O e h a dF Pe f a ce 1309

Tab e I

N be a d Pe ce f Fa a d N fa F b T -D g SIC
C de ( = 403 f )
N be a d e ce f f b -d g a da d d ca f ca c de. Fa (N -
fa ) efe h e f h ( h ) fa e h fa e e ce he b a d f
d ec . Pe ce Fa F I d c ed a he be f fa f d ded
b he a be f f .

Pe ce Fa
N fa Fa F
SIC C de I d De c F F I d
10 Me a g 5 0 0.0
13 O a d ga e ac 9 2 18.2
15 Ge e a b d g c ac 1 1 50.0
16 Hea c c , e ce b d g 2 0 0.0
20 F da d d ed d c 12 7 36.8
21 T bacc d c 1 0 0.0
22 Te e d c 0 2 100.0
23 A a e a d he e e d c 2 2 50.0
24 L be a d d d c 1 4 80.0
25 F e a d f e 1 2 66.7
26 Pa e a d a ed d c 10 7 41.2
27 P g a d b h g 4 10 71.4
28 Che ca a d a ed d c 30 12 28.6
29 Pe e a d c a d c 8 2 20.0
30 R bbe a d ce a e a c d c 3 3 50.0
31 Lea he a d ea he d c 2 0 0.0
32 S e, c a , a d g a d c 1 0 0.0
33 P a e a d e 11 5 31.3
34 Fab ca ed e a d c 9 3 25.0
35 I d a ach e a d e e 17 11 39.3
36 E ec c a d he e ec ca e e 16 6 27.3
37 T a a e e 18 5 21.7
38 I e a d e a ed d c 14 4 22.2
39 M ce a e a fac g d c 3 1 25.0
40 Ra ad a a 5 0 0.0
42 T c g a d a eh g 0 1 100.0
45 T a a b a 5 1 16.7
47 T a a e ce 1 0 0.0
48 C ca 5 4 44.4
49 E ec c, ga , a d a a e ce 3 3 50.0
50 Wh e a e ade-d ab e g d 3 2 40.0
51 Wh e a e ade- d ab e g d 7 1 12.5
52 B d g a e a a d ga de g 1 1 50.0
53 Ge e a e cha d e e 5 3 37.5
54 F d e 1 5 83.3
55 A dea e a d e ce a 0 1 100.0
56 A a e a d acce e 2 5 71.4
57 F e a d h e f h g 3 0 0.0
58 Ea g a d d g ace 2 3 60.0
59 M ce a e e a 1 5 83.3
60 De 0 1 100.0
61 N de 4 0 0.0

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1310 The J a f F a ce

Tab e I -c ed

Pe ce Fa
N fa Fa F
SIC C de I d De c F F I d

62 Sec a d c d b e 2 0 0.0
63 I a ce ca e 15 3 16.7
64 I a ce age , b e , e ce 2 0 0.0
70 H e a d he dg g ace 1 2 66.7
72 Pe a e ce 0 2 100.0
73 B e e ce 6 7 53.8
75 A e a , e ce , a d a g 1 0 0.0
78 M c e 1 2 66.7
79 A e e a d ec ea e ce 2 0 0.0
80 Hea h e ce 2 0 0.0
82 Ed ca a e ce 1 0 0.0
87 E g ee g a d a age e e ce 1 0 0.0

a d g ha e , h e a N d ' , he fa ha e a ed 24 e ce f
he ha e a a c . T add e h ce a , e c ea e a d
a ab e ha e a e he f d g fa e h d ha e he f he
f d g fa e be a e e e he b a d f d ec .14
T b ' a d e a e (ROA) a e a e f a ce ea e .
We e a e T b ' ( ) a he a e a e f a a e d ded b he e a-
ce e c f a e . We e a e a e a e a d e ace e c g
Ye ac ' (1996) a g h . ROA c ed a . I e a ach, e
e e c e ca ed b he b a e f a a e . I he ec d a ach,
e e ea g bef e e e , a , de ec a , a d a a (EBITDA)
d ded b he b a e f a a e .

C. C Va ab e

We d ce e e a c a ab e a a c f d
a d f cha ac e c . F e he a a g f he b a e f a
a e . G h e a e ea ed a he a f e ea ch a d de e -
e e e e a ae . F he a da d de a f h c
e f he 60 h . We c f deb he ca a c e b

14 We ha e a e ed ca e a fa f a d he e h d g . H e e , U.S.
e g e e e a ca e a d a d ba e a e f fa e h
c ea g a ba a d e e g. F a ce, g ea g a dch d e f Sch -
be ge L ed' f de e e he c e b a d f d ec . F 1992 1997, he ag-
g ega e e h e ed he a e e f he e d ec a 1.3 e ce .
H e e , 1998, he agg ega e h d g c ea e 5 e ce beca e he he a ed
a a a d he he ed a add a 25 ha e ha e e e e ed
he a e e . The Sec e E cha ge Ac f 1934 e e ha ff ce a d d ec-
a d f e e ce e e he h d g . Th , e e a fa e be c d h d
4.9 e ce f he f , e e a a ff ce d ec , a d e d ca e h a
fa e h . Th gge he e f a b a d ca a ab e de e fa f .

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 F d g-Fa O e h a dF Pe f a ce 1311

d d g g- e deb b a a e .F age ea ed a he a a g f
he be f ea ce he f ' ce .
Beca ec a eg e a ce echa ca a f e ce f e f -
a ce a d a affec fa c , e c de e f a g e a ce
de ce . We e a a c a e a e e c ec da a he ea d
c f he b a d f d ec .C e ab hed g a d ec-
c a f ca che e a he ca eg a B c e ,C e , a d Te -
(1994). We ec f ca c f de d ec a a a d de f
he e a b a d e be h e aff a h he f he d ec h .
D ec c e e ed ( e ed) b (f ) he f , he ed a e fa
e be , a d d d a he g e a b e e he f a e
de f ed a de aff a ed d ec . We c ec b a d f a f
e e he ea f a e e d: 1993,1995,1997, a d 1999.
We a c a e a CEO c e a ea e he a a beca e f
he e a be ee e ec e a a d f e f a ce. O ea e, CEO
E -Ba ed Pa , def ed a e -ba ed a ( e ) d ded b he
f e -ba ed a , aa , a d a a b . C e a da a c e
f S&P' COMPUEXEC.
O he a ge ha eh de ch a a e f d a a a a g-
f ca e g a d d c g a age . A ch, he fa ' ce
a d c he f a be b a a a e he e e ce f de
b c h de . F c a e a e e , e de f a b c h de h
a ea a f e e ce e a e he f . B c h de a e def ed a af-
f a ed aff a ed he e a aff a ed b c h de def ed a a e
h e a h he f he ha he e h d g . F a , e a
c de he e h d g f ff ce a d d ec ( e fa e h )
ca e he ce e effec f he de ' e h .

D. S a S a c

Tab e II, e e h ee a e f de c e f a f a e f
f . Pa e A de ea , ed a , a da d de a , a d a
a d a e f he e a ab e a e. Pa e B h he e-
f d ffe e ce f ea e be ee fa a d fa f . Pa e C
de a e c e a a f he a ab e he a e. F he -
a a e da a, e e e e b e a e f g e- e e a e age . S e-
c f ca , e a e age ac e f each f a d he de e e he ea f
he a e b a e ag g ac f . 5

15 F d g fa e e e gh f he a e, ca g he f ' de g a cha ge
f fa fa . T acc da e he e cha ge he a a e a a ( he -
a a e a a e e f - ea b e a ga e h c ce ), e a e age ac he
ea ha he fa a a a e e ce a d c a f he f a a fa f . The e a g
ea f he e- e e a e age (17 b e a ), he e he fa ge e e , a e
h he a a e da a. H e e , he e a e b c a f g he e a fa
f ba g he a a e a a f - ea b e a . Fa de a e f
he e e gh f a e d e dea h e e e f he f de (f f ), d ag ee e h
b a d/ de ha eh de ( f ), a d a e f a e a de a ( f ).

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1312 The J a f F a ce

Tab e II

De c e Da a f Fa a d N fa F ( = 403 f )
Pa e A, B, a d C de a a c f he da a e ed a a . The da a
e c ed f 403 f c e g 1992 1999 f S&P 500 f . Da a f he a a e
a c ba ed e- e e a e age f each f , a d he a e ag g ac f . N -
fa a e h e f h fa e h fa e e ce he b a d f d ec .
Fa f a e f he e he fa c e ha e a e e h a e b a d
ea . T f f g h e , e e R&D/ a e h ch e ea ch a d de e -
e e e e d ded b a a e . Le e age LT Deb / a a e ha ea ed a he
b a e f g- e deb d ded b he b a e f a a e . F Re a-
a d def ed a he a da d de a f c
e f he e 60 h . F
e L ( a a e ), h ch e ea e a he a a g f he b a e f a a e . We
f F age g he be f ea ce he f ' ce . Pe f a ce ea-
ed a Re a e bef e e e , a , de ec a , a d a a ( e c e)
d ded b a a e . We ea e Re e a ea g bef e e e , a , de ec a-
, a d a a d ded b he b a e f ha eh de e . F a e T b '
ca c a ed f g Ye ac (1996). I de h d g Off ce a d d ec e h a d
ea ed a he e h d g f a ff ce a d d ec e fa h d g . B a d de-
e de ce O de d ec a d def ed a he f ac f de e de d ec e g
he b a d d ded b b a d e. O he a ge ha eh de a e O de b c h d g a d h
e a he f ac a e a e f aff a ed e h d g a ea f e e ce f he
f ' a d g ha e . CEO e f a ce a CEO e -ba ed a a d ca c a ed a
he a e f a a a d ded b he f aa , b a d a a a . - a-
c a e c ec ed f e a c ea . Pa e B de d ffe e ce f ea e be ee
fa a d fa f , a d d ca e g f ca ce a he e e ce (*) e e . - a c
a e c ec ed f e a c ea g he H be Wh e Sa d ch E a f a a ce.
Pa e C de he c ea da a f a ab e ed he a a .

Pa e A: S a S a c f he F Sa e
S a da d
Mea Med a De a Ma . M .

R&D/ a e (%) 2.11 0.44 3.54 22.02 0.00

LT deb / a a e (%) 18.97 17.50 12.30 62.09 0.00
Re a 0.28 0.26 0.08 0.62 0.13
L ( a a e ) ($000,000) 8.44 8.34 1.32 12.49 5.25
F age ( ea ) 84.50 84.50 37.70 203.50 6.00
Re a e (EBITDA) (%) 15.05 14.10 8.66 54.95 -8.39
Re a e ( e c e) (%) 5.16 4.61 4.58 46.21 -29.98
Re e (EBITDA) (%) 46.76 36.79 123.04 196.53 -104.08
T b ' 1.41 1.20 0.08 5.41 0.12

Off ce a d d ec e h ( e fa ) 1.42 0.80 2.44 24.70 0.02

O de d ec (%) 55.39 56.79 16.71 88.88 0.00
U aff a ed b c h d g (%) 10.69 8.78 9.46 51.33 0.00
CEO e -ba ed a (%) 35.89 36.44 15.64 89.51 0.00

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 F d g-Fa O e h a dF Pe f a ce 1313

Tab e II c ed

Pa e B: D ffe e ce f Mea Te

Fa N fa
F F - a c

1 N be f f 141 262
2 Fa e h (%) 17.88 0.00 10.38*
3 F de CEO (%) 14.54 0.00 4.68*
4 De ce da CEO (%) 30.43 0.00 7.32*
5 O de CEO (%) 55.03 100.0 12.20*

6 R&D/ a e (%) 2.10 2.12 0.07

7 LT deb / a a e (%) 18.54 19.18 0.44
8 Re a 0.283 0.279 0.48
9 T a a e ($000,000) 9,617 14,999 3.73*
10 F age ( ea ) 76.00 88.61 3.13*

11 Re a e (EBITDA) (%) 15.90 14.63 1.39

12 Re a e ( e c e) (%) 6.07 4.70 2.81*
13 Re e (EBITDA) (%) 53.89 43.26 0.56

14 T b ' 1.59 1.32 3.14*

15 Off ce a d d ec e h ( e fa )1.35
(%) 1.45 0.47
16 O de d ec (%) 43.59 61.16 10.73*
17 U aff a ed b c h d g (%) 8.35 11.84 3.58*
18 CEO e -ba ed a (%) 29.37 39.07 5.69*

Pa e C: C e a Da a

Fa ROA Off ce & L (T a

F (EBITDA) T b ' D ec B c h de A e )

Fa f 1.000
ROA (EBITDA) 0.069 1.000
T b ' 0.163 0.499 1.000
Off. & d . . -0.020 -0.054 0.014 1.000
B c h de -0.174 -0.151 - 0.285 0.003 1.000
L ( a a e ) -0.190 0.021 -0.218 - 0.110 - 0.221 1.000
L (f age) -0.157 -0.046 -0.122 -0.130 -0.211 0.319

We f f g h e h he a f e ea ch
e (R&D) e e e a a e a d f d ha R&D e e d e
2.11 e ce f a e (Pa e A). The a e age f a e ea
d, gge g ha f a e e e ab hed a he ha e
ece de g e a b c ffe g . I e f e f a ce
f a e ha a e a e , ba ed EBITDA ( e c
e ce (5.16 e ce ). T b ' , ea e f a e e f a ce
a e f 1.411 h a a a d a e f 5.41 a d 0.12,
Pa e B e e d ffe e ce f ea e f a ab e be ee
fa f . Fa f e e e 35.0 e ce f a e. The

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1314 The J a f F a ce

a e ba ed e- e e a e age f each f he a e. R 3, 4, a d 5
de f a he f e e c f fa CEO . We f d a g fa f
ha 45.0 e ce f he CEO a e fa e be a d 55.0 e ce a e de
h ed ha d . Of he 45.0 e ce fa CEO , e e 14.5 e ce a ef de
a d 30.4 e ce a ef de de ce da .R 9 h ha fa f , a e -
age, a e a e ha fa f b f b a a e h ea a
a e f $9.617 b ea e $14.999 b f fa f . Fa f
a d a ea e deb d ffe e ha fa f ; fa e e
ab 18.5 e ce g- e deb he ca a c e e 19.2 e ce
f fa f ; he d ffe e ce g f ca a c e a e e .
R 11, 12, 13, a d 14 h acc ga d a e e f a ce ea e f
he f he a a . W h e ec acc g e f a ce, e f d e
d ffe e ce he a a ea a be ee fa a d fa f h he
e ce f ROA ( g e c e a he e a ), h ch d ca e ha fa-
f a e g f ca be e e f e . U g T b ' , a he e f a ce
ea e, e f d ha fa f ha e g f ca (a he e e ce e e)
g ea e a a ha fa f , 1.593 e 1.322 f fa a d fa -
f , e ec e .
C a e g e a ce cha ac e c a e h 15,16,17, a d 18 a d
d ca e e a c d ffe e ce be ee fa a d fa f .O de d -
ec ,f a ce, a e e e ae fa f ha fa f .
U aff a ed b c h de ( de e de e e h d g f e e ce e f
he f ' ha e ) a g f ca d ffe be ee fa (8.35 e ce ) a d -
fa f (11.84 e ce ). F a , e a e ha CEO fa f ea
ea 10.0 e ce e f he a a e -ba ed f c a ed CEO
fa f . The a a e e de ce f c a e g e a ce gge
ha f fa e ee e e ch he e e a d e ac a e be ef f
he f , he ac f ge e a a dd c e age e a
e he e h a h.
Pa e C de a c ea a f e f he e a ab e he a a-
.F d g-fa e e ce a ea bea a ea ca hb h
acc ga d a e ea e ff e f a ce. I add ,c e
h e a a , e f d a ega e e a be ee fa e h
a d he e e ce f aff a ed b c h de , f e, a d f age. Beca e
f ea d a e e f a ce a e ega e c e a ed, e e a e he e a-
be ee fa e e ce a d f e f a ce he f g ec
g a a ea a .

III. Fa O e h a d F Pe f a ce
A. M a a e A a
O a e e he ea be ee f d g-fa e h a d f
e f a ce. The a a a c a e a ab e ha de f CEO a f
f de , de ce da f he f ' f de , de . We e a - a
f ed effec de f eg e a a . The f ed effec a e d

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 F d g-Fa O e h a dF Pe f a ce 1315

a ab e f each ea f he a ea dd a ab e f each -d g
SIC c de. The eg e e a ee f a a ea a a e
he f

F Pe f a ce = 0 + 1 (Fa F ) + 53(c Va ab e )
+ 63_54(T dg SIC C de) + 93-99( Yea D Va ab e ) + E

he e
F
Pe f a ce = ROA ba ed EBITDA a d e c e, a d T b ' ;
FaF = b a a ab e ha e a e he he f d g fa e-
e he f , a d e he e;
C Va ab e = ff ce a d d ec h d g e fa h d g , aff -
a ed b c h d g , f ac f de e de d ec e g he b a d,
f ac f a a ha he CEO ece e e -ba ed f , e ea ch a d
de e e e e e d ded b a ae , g- e deb d ded b a a -
e , c e a , a a g f a a e , a d he a a g f f
age;
T -D g SIC C de = 1.0 f each -d g SIC c de a e;
Yea D Va ab e = 1.0 f each ea f a e e d.

Oda a a f 1992 h gh 1999 a d c e 403 f . We c f

e a c ea a d he e eda c g he H be Wh e Sa d ch E -
a (c e ed) f a a ce. I Tab e AI he A e d , e e e a e a-
e ec e c ech e ha c f e a c ea . The e ech e
c de: (a) a d -effec a e da a eg e , (b) ed, e- e e a e age
eg e , a d (c) Fa a-MacBe h eg e . The e f he a e a e
ec f ca a e a a e a d a a e a he e Tab e
III h gh VI.
Tab e III e e e g acc g e f a ce ea e . I c
1, 2, a d 3, e e e a e (ROA) ca c a ed h ea g bef e e -
e , a , de ec a ,a da a (EBITDA). C 4,5, a d 6 h ROA
g e c e a he e a .
F c g c 1 a d 4, c a he ha fa f e ce
ha f e f a ce, ef d ea e g e de ce ha fa f e -
f be e ha fa f . S ec f ca , e f d ha he c eff c e e -
a e fa f e a d g f ca he g e he EBITDA
e c ea he e a ca c a g ROA. Ba ed he a e age ROA
(EBITDA) he a e, fa f a ea e 6.65 e ce e ea e
fa f .16

16We ca c a e h a : Re = c eff c e e a e/a e age ROA = 0.010/0.1505 = 0.0665.

S a , f ROA ba ed e c e, he d ffe e a : 0.007/0.0516 = 0.1357. We a
e ea he a a g e e (ROE) a he e f a ce ea e a d f d
a e .

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 1316 The J a f F a ce

Tab e III

Acc g Mea e f Pe f a ce a d F d g-Fa O e h

Th ab e e e f eg e g f e f a ce fa e h . Re a e
EBITDA e c e d ded b a a e . Fa f b a a ab e ha e a e
he he f d g fa e e he f . Y g fa f e a e he f age
e ha 50 ea a d he fa e e he f . O dfa f e a e he f age
g ea e ha e a 50 ea a d he fa e e he f . CEO h e e a e
he he CEO a fa e be a fa f , CEO f de e a e f he CEO he
f de f he f a d CEO de ce da e a e f he CEO a f de 'de ce da . Off ce
a d d ec e h ( e fa e h ) de e h e fa e h . U -
aff a ed b c h de he agg ega e f ac a h d g f e e h d g e ha f e e -
ce f he f ' ha e . O de d ec he be f de e de d ec d ded b
b a d e. CEO e -ba ed a he a a a e f g a d ded b a CEO a .
R&D/ a e e ea ch a d de e e e e e d ded b a a e . LTdeb / a a e
he b a e f g- e deb d ded b a a e . Re a he a da d de a-
f h c e f he e 60 h . L ( a a e ) he a a g f
a a e . L (f age) he a a g f be f ea ce f ce . A eg e -
c de d a ab e f -d g SIC c de a d f each ea f he a e e d. -
a e a e a e he e a d a e c ec ed f e a c e a h he H be Wh e Sa d-
ch E a f a a ce. N be f b e a 2,713.

Re A e Re A e
(U g EBITDA) (U g Ne I c e)
(1) (2) (3) (4) (5) (6)
I e ce 0.287 0.265 0.266 0.215 0.188 0.195
(9.55) (8.02) (8.30) (13.92) (13.24) (11.77)
Fa f 0.010 0.007
(2.42) (2.31)
Y g fa f
(age < 50.0 ea ) 0.028 0.016
(2.90) (3.23)
O d fa f
(age > 50.0 ea ) 0.014 0.004
(3.51) (1.69)
CEO h e 0.008 0.002
(1.63) (0.81)
CEO f de 0.035 0.314
(2.83) (4.09)
CEO de ce da 0.019 0.115
(3.61) (2.67)
Off ce /d ec
( e fa ) 0.014 0.081 0.035 0.049 0.032 0.072
(0.22) (1.00) (0.57) (1.06) (0.73) (1.52)
U aff a ed
b c h de -0.014 -0.013 -0.014 -0.013 -0.012 -0.012
(3.80) (3.35) (3.61) (3.99) (4.73) (3.83)
O de d ec - 0.016 - 0.006 - 0.010 0.003 0.001 0.006
(1.43) (0.53) (0.88) (0.31) (0.05) (0.77)
CEO e -ba ed a 0.008 0.009 0.011 0.006 0.007 0.009
(1.18) (1.20) (1.58) (1.30) (1.51) (1.80)
R&D/ a e 0.251 0.218 0.249 0.071 0.002 0.069
(3.07) (2.61) (3.02) (1.27) (0.04) (1.23)

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 F d g-Fa O e h a dF Pe f a ce 1317

Tab e III-c ed

Re A e Re A e
(U g EBITDA) (U g Ne I c e)

(1) (2) (3) (4) (5) (6)

LT deb / a a e
0.037 0.041 0.039 - 0.141 - 0.135 - 0.140
(1.86) (2.01) (1.99) (12.63) (12.59) (12.59)
Re a - 0.207 - 0.185 - 0.211 - 0.181 - 0.163 - 0.185
(7.43) (6.86) (7.66) (7.12) (7.80) (7.26)
L ( a a e ) 0.005 0.005 0.005 - 0.004 - 0.004 -0.004
(2.14) (2.35) (2.27) (2.56) (3.30) (2.50)
L (f age) -0.029 - 0.029 - 0.026 - 0.013 - 0.008 - 0.009
(5.93) (5.07) (4.95) (4.34) (2.88) (2.98)

Ad ed R a e 0.365 0.363 0.363 0.276 0.281 0.283

P e a e gge ha f de b g e, a e-add g
f ha e e acc g e f a ce a d a e
he f c e age, h e e , fa e be ha e e c
d c a d eff c e c , gge g ha he be e e f a ce
fa f a b ab e a he ge f
e c f f age eg e ec f ca , e d
gh h e b c a f g fa f a "Y g" a d "
he he he f de e 50 ea f age. A h gh a b a ,
age c e a h e (g) e gh e he he
e a b g, e e e e a f .17 C 2 a d
h he e f eg e g acc g ea e f e f a
a d O d Fa F . A h gh ge f ha e a g ea e
ha b h g a d d fa f e h b a g f ca a d
ROA; gge g ha ega d e f f age, a e age, fa
be e e f e ha fa f .
We e e a e he he he b e ed e acc g e f
fa f a f c f ac e ( a e) fa e e
e . I c 3 a d 6 f Tab e III, e c de a ab e ha de
f de , f de de ce da , a d h ed ha d ( de ). The
eg e e a de e CEO fa f . Ba ed ac
f a ce, fa f a ea be be e e f e he
be e e a CEO. The c eff c e e a e CEO H e g
he c eff c e e a e f CEO F de a d CEO De ce da
a d g f ca , d ca g ha ac e fa e e a
a c a ed h ed f e f a ce.

17 The 25 h e ce e f age f a e f f 45.8 ea , gge

g a ca e f he f a e ba ed age. We a ed c -
40, 45, 55, a d 60 ea h a e .

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 1318 The J a f F a ce

Tab e IV

Ma e Mea e f Pe f a ce a d F d g-Fa O e h
Th ab e e e f eg e g f e f a ce fa e h . T b he
a e a e f a e d ded b he e ace e c f a e . Fa f b a a ab e
ha e a e he he f d g fa e e he f . Y g fa f e a e
he f age e ha 50 ea a d he fa e e he f . O d fa f e a
e he f age g ea e ha e a 50 ea a d he fa e e he f . CEO
h e e a e he he CEO a fa e be a fa f , CEO f de e a e f
he CEO he f de f he f a d CEO de ce da e a e f he CEO a f de '
de ce da . Off ce a d d ec e h ( e fa e h ) de e h e
fa e h . U aff a ed b c h de he agg ega e f ac a h d g f e e h d-
g e ha f e e ce f he f ' ha e . O de d ec he be f de e de
d ec d ded b b a d e. CEO E Ba ed a he a a a e f g a d-
ded b a CEO a . R&D/ a e e ea ch a d de e e e e e d ded b a ae .
LTdeb / a a e he b a e f g- e deb d ded b a a e . Re a
he a da d de a f h c e f he e 60 h . L ( a a e )
he a a g f a a e . L (f age) he a a g f be f ea ce f -
ce . A eg e c de d a ab e f -d g SIC c de a d f each ea f
he a e e d. - a e a e a e he e a d a e c ec ed f e a c ea h he
H be Wh e Sa d ch E a f a a ce. N be f b e a 2,713.

T b '

(1) (2) (3)

I e ce 3.638 3.421 3.473

(17.14) (15.28) (15.79)
Fa f 0.142
(3.63)
Y g fa f (Age < 50.0 ea ) 0.265
(3.54)
O d fa f (Age > 50.0 ea ) 0.102
(2.56)
CEO h e 0.123
(2.82)
CEO f de 0.472
(4.83)
CEO de ce da 0.057
(1.05)
Off ce /d ec ( e fa ) 1.666 2.744 1.737
(1.92) (2.53) (1.98)
U aff a ed b c h de - 0.345 - 0.332 - 0.345
(10.59) (10.09) (10.66)
O de d ec 0.040 0.074 0.072
(0.41) (0.74) (0.73)
CEO e -ba ed a 0.209 0.230 0.231
(3.38) (3.64) (3.80)
R&D/ a e
4.141 4.538 4.609
(6.99) (6.10) (6.91)
LT deb / a a e -1.032 -1.097 -1.025
(7.95) (8.14) (7.97)
Re a -1.896 -1.740 -1.967
(9.85) (8.83) (10.14)
L ( a a e ) -0.093 -0.079 -0.101
(5.61) (4.69) (6.24)
L (f age) -0.200 -0.192 -0.149
(5.87) (5.36) (4.36)
Ad ed R a e 0.411 0.413 0.416

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 F d g-Fa O e h a dF Pe f a ce 1319

Tab eV

N ea e be ee Pe f a ce a d F d g-Fa O e h
Th ab e e e f eg e g f e f a ce fa e h . T b ' he
a e a e f a e d ded b he e ace e c f a e . Fa e h he f ac-
a e e h f he f ' f d g fa . Off ce a d d ec e h ( e fa
e h ) de e h e fa e h . U aff a ed b c h de he agg ega e
f ac a h d g f e e h d g e ha f e e ce f he f ' ha e . O de d ec-
he be f de e de d ec d ded b b a d e. CEO e -ba ed a he
a a a e f g a d ded b a CEO a . R&D/ a e e ea ch a d de e e
e e e d ded b a a e . LTdeb / a a e he b a e f g- e deb d ded b
a a e . Re a he a da d de a f h c e f he e
60 h . L ( a a e ) he a a g f a a e . L (f age) he a a g f
be f ea ce f ce . A eg e c de d a ab e f -d g
SIC c de a d f each ea f he a e e d. - a e a e a e he e a d a e c ec ed
f e a c ea h he H be Wh e Sa d ch E a f a a ce. N be f b e -
a 2,713.

Re A e Re A e
(U g EBITDA) (U g Ne I c e) T b '

I e ce 0.272 0.205 3.760

(9.02) (14.89) (17.92)
Fa e h 0.099 0.042 0.663
(3.41) (2.27) (2.11)
(Fa e h )2 - 0.161 - 0.076 - 1.070
(3.82) (2.65) (2.55)
Off ce /d ec ( e fa ) 0.048 0.023 1.447
(0.60) (0.52) (1.68)
U aff a ed b c h de - 0.010 - 0.013 -0.356
(2.74) (4.73) (10.86)
O de d ec - 0.021 - 0.005 - 0.068
(1.84) (0.75) (0.73)
CEO e a -ba
0.005 0.005 0.192 ed
(0.74) (1.17) (3.09)
R&D/ a e 0.199 0.013 4.702
(2.48) (0.24) (7.20)
LT deb / a a e 0.052 - 0.135 - 1.026
(2.59) (12.56) (7.92)
Re a - 0.190 - 0.161 - 1.897
(7.01) (7.60) (9.82)
L ( a a e ) 0.005 - 0.004 -0.098
(2.11) (3.57) (5.94)
L (f age) - 0.027 - 0.010 - 0.197
(5.26) (3.83) (5.72)
Ad ed R a e 0.367 0.278 0.408
I f ec (%) 30.8 27.6 31.0

Tab e IVe a e a e , a he ha acc

fa f . C 1 e he e
he de e de a ab e a d he fa f b
The c eff c e e a e f he fa f d

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1320 The J a f F a ce

Tab eVI

I e a Va ab e Reg e : Pe f a ce Fa O e h
Th ab e e e f e a - a ab e, - age ea a e eg e f he
ed c ed a e f fa e h f e f a ce. Re a e EBITDA e
c e d ded b a a e . T b ' he a e a e f a e d ded b he e ace e
c f a e . P ed c ed a e f fa f he ed c ed a e f a eg e g fa e -
h he a a g f a a e , he a e f he a a g a a e , a d e
a . Off ce a d d ec e h ( e fa e h ) de e h e fa-
e h . U aff a ed b c h de he agg ega e f ac a h d g f e e h d g
e ha f e e ce f he f ' ha e . O de d ec he be f de e de d ec-
d ded b b a d e. CEO e -ba ed a he a a a e f g a d ded b
a CEO a . L g- e a e / e a e he b a e f f ed a e d ded b e a e .
O e a g c e/ e a e EBITDA d ded b e a e . R&D/ g- e a e e ea ch a d
de e e e e e d ded b f ed a e . R&D d a ab e e a e he he f
d e e e ea ch a d de e e e e e a d e he e. Ad e g e e e/
g- e a e he f ' ad e g e e e d ded b f ed a e . Ad e g e e e
d a ab e e a e he he f d e e ad e g e e e a d e he -
e. Ca a e e d e / g- e a e he f ' ca a e e d e d ded b f ed a -
e . A eg e c de d a ab e f -d g SIC c de a d f each ea f he
a e e d. - a e a e a e he e a d a e c ec ed f e a c e a h he H -
be Wh e Sa d ch E a f a a ce. N be f b e a 2,713.

Re A e Re A e
(U g EBITDA) (U g Ne I c e) T b '

I e ce - 0.041 - 0.108 - 0.013

(0.66) (1.81) (0.12)
P ed c ed a e f fa f 0.137 0.184 1.882
(2.22) (3.12) (2.12)
Off ce a d d ec e h ( e fa ) 0.205 0.290 4.200
(1.28) (1.52) (1.67)
U aff a ed b c h de - 0.010 - 0.004 - 0.177
(0.98) (0.47) (1.51)
O de d ec 0.129 0.186 1.722
(1.81) (2.70) (1.78)
CEO e -ba ed a 0.047 0.041 0.428
(2.61) (2.79) (2.61)
L g- e a e / a e 0.152 - 0.018 - 0.532
(5.88) (0.81) (1.79)
(L g- e a e / a e )2 - 0.010 0.010 0.115
(0.63) (0.88) (0.82)
O e a g e/ a e c 0.004
(1.90)
R&D/ g- e a e 0.032 - 0.003 0.564
(2.01) (0.14) (3.10)
R&D d a ab e - 0.024 -0.023 -0.021
(2.44) (2.39) (0.15)
Ad e g e e e / g- e a e 0.015 0.008 0.017
(6.00) (2.49) (0.43)
Ad e g e e e d a ab e 0.009 0.004 0.027
(0.99) (0.48) (0.26)
Ca a e e d e / g- e a e 0.096 0.026 0.766
(2.82) (0.79) (1.76)
Ad ed R a e 0.401 0.199 0.353

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 F d g-Fa O e h a dF Pe f a ce 1321

he e e ce e e . Th e a ec ca g f ca a d gge
ha T b ' fa f 10.0 e ce h ghe ha fa f .18
C 2 d ffe e a e be ee g a d d fa f . Aga e f d ha
b hg f fa f a ea c a ed h g ea e T b ' . F a ,
c 3, e c de h ee c a f ca f CEO , f de , f de de -
ce da , a d h ed ha d . C e h he acc g ea e f
e f a ce, e f d ha f de a e a c a ed h g ea e f a e . H ed
ha d a e h b a g f ca a d e a ca h ; h e e , e f d
ha f de de ce da a e e a ed a e e f a ce, gge g ha
a e a c a e f de de ce da a CEO fa
f .
C ce g he c a ab e , e f d ha f a e (T b ' ) ega-
e e a ed de b c h d g , deb age, ,f e, a d f age.
We ea ea ca be ee a d ff ce a d d ec e h (e
fa h d g ), CEO e -ba ed a , a d e ea ch a d de e e e e e .
The e f a a h e ec he c a ab e ge e a c -
e hf d g ea e e ea ch.

B. N ea e be ee F Pe f a ce a d F d g-Fa O e h

The e f he ec gge ha f d g-fa e e ce e h -

b a ea ca h acc ga d a e e f a ce. I h ec-
, ee a e he b f ea e be ee f e f a ce a d
fa e h .P e e ea ch gge ha he e a be ee e
e h c ea df e f a ce a be ea f he ce e
c e f he e c a a cha ge a h d g c ea e (e.g., M c e a .
(1988)). We df eg e ec f ca b c d g fa e h a d
he a e f fa e h a c a ab e (McC e a d Se ae
(1990)). The e a e Tab e V hc 1a d2 g acc g ea-
e , h ec 3 e a e e f a ce T b ' .
The e d ca e ha he e a be ee f e f a ce a d f d g-
fa e h ea . The f ec he e he e f a ce ga
a c a ed h fa e h beg a e ff a 30.8 e ce (27.6 e -
ce ) g EBITDA ( e c e) c e ROA. Ba ed he e e , fa
f a e a c a ed h be e e f a ce ha fa f ab
60 e ce e h , h ch e ceed he e h e e e b e e he b
f a e. U g T b ' (c 3) e f d a a ea ha f ec-
a e f a ce a 31.0 e ce fa e h .19 Wh e
e e ed, e e ea he a a g e a a ed a ab e de e
fa e h e ha a d g ea e ha 32 e ce e h a e . We f d
ha b h g a ea c a ed h e e f a ce, a h gh he
e h g h he be e f a ce.

18 We ca c a e h a he c eff c e e a e f fa f (0.142) d ded b he a e age

T b ' f he a e (1.415).
19 I c d g fa CEO a ab e , e a f da a ca g f ca , c ea e a-
be ee fa h d g a dT b ' ( f ec a 34.0 e ce ).

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1322 The J a f F a ce

O e a , a a gge ha he e a be ee fa h d g a d
e f a ce f e he e e a ge f fa e h ;f e -
f a ce c ea g fa e ab e- h d f he f ' a d-
ge . Be d h e e, e f a ce beg dec e b be e ,
a e age, ha fa f .

C. O he E d ge e f Fa O e h a dF Pe f a ce

O a a e a ffe f a e d ge e b e ; ec f ca , he
e he he fa e h e e f a ce g e f a ce
fa e a a he h d g . Fa e , beca e f he a ge
e a e a df e e c f e a age a , a g ab ha e
f a ad a age e he f ' he ha eh de . A ch, fa e ca
e ead a ce a he f ' f e ec , gge g he e a e
h eb e e h fa ab e .
Wh e f d g fa e a ha e e f a , he a g e f g ea -
e e f a ce ca g fa h d g a d f ea .F , fa e
ha e he d he a e a e age f 75.9 ea , gge g e ce a f e gh b
he fa ed c g e f a ce. Sec d, e ha fa e ,a e ,
ha e ec a gh (be d h e he d b a ge, a e ) a ce -
a gf ef e f a ce. H e e , he e e ha fa e h
e a af c f e f e f a ce, e f H e be g, H b-
ba d, a d Pa a (1999) a d e e a - a ab e eg e e a e he
ea be ee fa e h a df e f a ce.
De e a d Leh (1985) gge ha e h af c ff ea d
. Acc d g , e de fa e h g he a a g f a a -
e , he a e f he a a g f a a e ,a d h c e a-
a e .
Tab e VI e e e a a ab e, - age ea a e (IV-2SLS) e-
g e e a e g a ec f ca a H e be g e a . (1999). S ec -
f ca , e eg e e f a ce ea e he ed c ed a e f fa f ,
ff ce a d d ec e h ( e fa ), de d ec , CEO e -ba ed
a , g- e a e ae , e a g c e a e , R&D g- e a e ,
ad e ge e e g- e a e , a d ca a e e d e g- e a -
e .F f ha d e f a R&D ad e g e e e, e
c a ead a ab e ha e a ea d e he e. A h
he eg e , e c de d a ab e f each -d g SIC c de a d
each ea f he a e. The - a c a e ad ed f e a c ea a d he -
e eda c g he H be Wh e Sa d ch E a f a a ce.
C 1 a d 2 f Tab e VI e acc g ea e f e f a ce a d c -
3 e a e e f a ce e c. The c eff c e he fa f
a ab e a e g f ca a d e g acc ga d a e e f a ce
ea e .O e a , e a e f he IV-2SLS eg e a ec e
h OLS e , gge g ha fa f a e e e f e
ea e fa f . H e e , e ca c e e e a e he -
b ha fa e a e e e e f h f e e f a ce,

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 F d g-Fa O e h a dF Pe f a ce 1323

g ha he g ea e e f a ce b e ed fa f e a d e
b h fa f e gh e g a d ed ced a age a age c c .

IV. R b e f M de S ec f ca

A a f a a ha he ec f ca a d e ade a e
ca e he a a e a b e . We f d ha e a e a b a -
a e a e ec f ca .
F , e e ga e he ac f a d e ge ce c a d ca h-f gh
f fa f a d f c he e e f c ha he fa ha ea e
he e h a e. Sh e fe a d V h (1997) gge ha he fa c -
g ea e ha he e h gh , he e a f e a f
he f a d ha eh de h ghe . T e a e h dea, e c de
he a f fa b a d c fa e h , a a add a a ab e
he eg e e ed Tab e III a d IV. If fa c gh a e he e,
he e e ec h a ab e ha e a ega e c eff c e e a e. H e e , e
f d ha he c eff c e e a e g f ca d ffe e f e e .
Ne , g he b e f fa f , e eg e f e f a ce he
a f fa b a d c fa e h . We aga f d e e de ce
ha he d e ge ce be ee e h a d c ead e f a ce d ffe -
e ce fa f .
Sec d, e e a a e a e a ach e ga e ea e fa
e h a d f e f a ce. S ec f ca , e e e a ece e ea e-
g e de b e a g b ea a ch g eg e ech e .
O a a aga gge ha fa f e f a ea a e a fa -
f a d he e a be ee e f a ce a d e h e hb a -
e ed-U ha e; ec f ca , e f d ha e f a ce f c ea g a d
he dec ea g fa e h .
Th d, e e a a e a e a ach c g f d d ffe e ce .
S ec f ca , e c f e a d effec b g he b e f
d e ha c a b h fa a d fa f ( .e., e c de d e
h 100 e ce fa fa f ). We f d a e h e
e ed Tab e III a d IV, a e , ha fa f a e a c a ed h
b h g ea e acc g a d a e e f a ce ea e fa f .
We a c f e a h ba b g he 329-f b e f
f ha a e a a ab e f he e e a e e d. C e h he
e , e f d ha fa f a e a c a ed h g ea e f e f a ce
a d ha he e f a ce ga a e g ea e he he fa a a ac e
c f he f .
F h, e e a e he he e a e affec ed b he g a e e -
f a ce f ech g f d g he 1990 . S ec f ca , e e ea he a a -
e c d g ech g f (SIC c de 35, 36, 38, a d 73) a d g da a f
he a e 1980 (1985 1989). The e , h Tab e AII he A e d , a e
a h e Tab e III a d IV.
T e he e f e he e e ce f e a d f e a
b e a , e e a e b e a ha he R-S de a d he DFFITS

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1324 The J a f F a ce

a c d ca e a f e a . The e a e a h e e ed he
ab e a d d cha ge b a e he ca ed f e a he a ge
e, h ee, f e e ce e e f each a f he d b f he de
a ab e . F he , beca e f - ea b e a a e f he e ba ,
e e ea he a a g ed (a e age) eg e a d Fa a-MacBe h
eg e h ch a ead a e ( ee Tab e AI he A e d ).

V. S a a d C c

O a ge- a e, c - ec a a a d ca e ha fa f e f
a ea a e a fa f . U g f ab -ba ed ea e f f e -
f a ce (ROA) e f d ha fa f a e g f ca be e e f e
ha fa f . Th e b he ea e e f ROA a d -
c e h he h he ha fa e h he e e eff c e
U.S. f . F he e g gge ha he g ea e f ab fa f ,
ea e fa , e f h e f h ch a fa e be e e a
he CEO. O e e e a ha he fa de a d he b e a d ha
ed fa e be e he e e a he e a d f he f .
U g a e -ba ed ea e f f e f a ce de add a e -
de ce ha fa f e f a ea a e a fa f . S ec f ca ,
e d c e h a a e a d a a e a a ha fa f (b h
g a d d) ha e h ghe T b ' a e ha fa f . The e e
a e b h a ca a d ec ca g f ca , h fa f e g
ab a 10.0 e ce g ea e T b ' , e a e fa f . F c g
he ac f fa e be a CEO d ca e ha f de CEO a d h ed-
ha d CEO a e a c a ed h he g ea e a e ga .
The a a a h ha he e a be ee fa e h a ge
b c f a d f e f a ce f ac a e e f fa -
e h . S ec f ca , e f d ha e f a ce f c ea g a d he dec ea -
g e h ( g b h acc g a d a e -ba ed ea e ). I he
d , he fa e ha e he g ea e c f he f , he e a f e -
e ch e a d e f a ce he g ea e .
Ta e a a h e, e de ce e ha fa f e f a e a , f
be e ha , fa f . I c a , Facc e a . (2001) e ha fa-
e h Ea A a ead e e e c f c h he c a a a d
ha e f e f a ce. F c g d ffe e ce he e g e g he
ea e f ha eh de , he ed d c e f f da a Ea
A a, a d he e a e ce f c - ha eh d g , Facc e a . gge ha he
be faced b Ea A a f a e e a ed c a e g e a ce a d he
ca - eg a e e . O e e f ce h e e a a d
gge ha c ed f d g-fa e h , a d f e f, ece -
a a e effec e ga a a c e. I ead, a be ha he ab
f de fa ac a a a b e g
fa a a . I , e ha e - eg a ed a d a -
a e a e , fa e h b c f ed ce age c be h-
ead g e e e e dec - a g eff c e c .

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 F d g-Fa O e h a dF Pe f a ce 1325

A e d
Tab e AI h a e a e eg e ech e f he ca d -
ba ce . Tab e AII h eg e e c d g ech f a d g f da a f
1985 1989.

Tab eAI

A e a e Reg e Tech e f N he ca D ba ce
(Se a C ea a d He e eda c )
Th ab e e e f eg e g f e f a ce fa e h g a e a e
ech e ha c f e a c ea a d he e eda c . Re a e EBIT-
DA d ded b a a e . T b ' he a e a e f a e d ded b he e ace e c
f a e . Fa f b a a ab e ha e a e he he f d g fa e e
he f . Off ce a d d ec e h (e fa e h ) de e h e fa
e h . U aff a ed b c h de he agg ega e f ac a h d g f e e h d g
e ha f e e ce f he f ' ha e . O de d ec he be f de e de d ec-
d ded b b a d e. CEO e -ba ed a he a a a e f g a d ded b
a CEO a . R&D/ a e e ea ch a d de e e e e e d ded b a a e . LTdeb /
a a e he b a e f g- e deb d ded b a a e . Re a he
a da d de a f h c e f he e 60 h . L ( a a e ) he
a a g f a a e . L (f age) he a a g f be f ea ce f ce .
A eg e c de d a ab e f -d g SIC c de a d f each ea f he a e
e d. - a e a e a e he e . N be f b e a 2,713.

Ra d -Effec Pa e P ed, T e-Se e Fa a-MacBe h

Da a Reg e A e age Reg e Reg e
ROA T b ' ROA T b ' ROA T b '
I e ce 0.221 3.256 0.226 4.133 0.290 3.669
(4.22) (2.81) (4.64) (9.14) (4.37) (10.30)
Fa f 0.017 0.153 0.018 0.185 0.013 0.151
(2.18) (2.81) (1.98) (2.12) (2.52) (3.72)
Off ce a d d ec e h
( e fa ) 0.018 1.615 - 0.066 0.270 0.026 1.924
(0.17) (0.86) (0.44) (0.19) (0.12) (1.93)
U aff a ed b c h de - 0.010 -0.319 - 0.015 - 0.567 -0.014 -0.374
(2.34) (5.05) (1.49) (5.98) (1.31) (2.20)
O de d ec - 0.011 0.085 - 0.038 0.032 - 0.014 0.069
(0.54) (0.40) (1.57) (0.14) (0.38) (0.48)
CEO e -ba ed a 0.013 0.337 0.030 0.637 0.014 0.271
(1.48) (4.32) (1.21) (2.68) (0.47) (0.86)
R&D/ a e 0.246 4.000 0.580 5.943 0.320 4.816
(1.73) (3.41) (4.23) (4.53) (1.24) (2.57)
LT deb / a a e 0.024 -0.960 0.096 - 0.903 0.060 -0.997
(0.69) (3.41) (2.85) (2.85) (1.02) (3.82)
Re a - 0.195 -1.594 - 0.309 - 2.589 -0.184 -1.994
(4.45) (4.96) (5.91) (5.20) (1.67) (3.40)
L ( a a e ) 0.007 -0.073 0.006 - 0.149 0.004 - 0.099
(1.24) (2.34) (1.45) (4.09) (0.76) (2.20)
L (f age) - 0.021 -0.174 - 0.013 - 0.150 - 0.028 -0.175
(2.15) (2.37) (1.73) (2.20) (2.56) (1.73)
Ad ed R a e 0.511 0.492

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1326 The J a f F a ce

Tab eAII

Reg e E c d g Tech F a d U g Da a f 1985 1989

Th ab e e e f eg e g f e f a ce fa e h he e c d g
ech g f f he a e a d g da a f he e d 1985 1989. Whe e c d g
ech g f , e d b e a ha a e SIC c de 35, 36, 38, a d 73. Re a e
EBITDA e c e d ded b a a e . T b ' he a e a e f a e d ded b
he e ace e c f a e . Fa f b a a ab e ha e a e he he f d g
fa e e he f . R&D/ a e e ea ch a d de e e e e e d ded b a
a e . LTdeb / a a e he b a e f g- e deb d ded b a a e . Re -
a he a da d de a f h c e f he e 60 h . L ( a
a e ) he a a g f a a e . L (f age) he a a g f be f ea ce
f ce . A eg e c de d a ab e f -d g SIC c de a d f each
ea f he a e e d. - a e a e a e he e a d a e c ec ed f e a c e a
h he H be Wh e Sa d ch E a f a a ce. N be f b e a a e ed be-
each eg e .

E c d g Tech g F Da a f 1985 1989

ROA T b ' ROA T b '

I e ce
0.159 3.163 0.212 2.924
(4.09) (6.73) (11.74) (4.41)
Fa f 0.015 0.156 0.008 0.086
(2.25) (2.05) (2.19) (2.07)
R&D/ a e 0.469 9.441 -0.009 1.941
(2.88) (4.38) (0.11) (2.35)
LT deb / a a e 0.015 -0.884 - 0.095 - 0.722
(0.54) (3.49) (5.03) (4.57)
Re a -0.193 - 1.746 -0.061 - 0.280
(5.07) (4.73) (1.28) (0.85)
L ( a a e ) 0.010 - 0.075 - 0.001 - 0.147
(3.19) (1.88) (0.28) (7.25)
L (f age) -0.015 - 0.151 - 0.009 -0.128
(1.92) (2.10) (3.43) (4.01)

Ad ed R a e 0.449 0.405 0.390 0.393

Ob e a 2,096 2,096 1,578 1,578

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