The Impact of CEO Behavior on Firm Performance and Productivity: CID Faculty Research Insights

How does CEO behavior—specifically leadership versus managerial time allocation—impact firm productivity and performance across global markets?

CID Faculty Affiliate Raffaella Sadun and co-authors developed a new approach to studying how CEO behavior influences firm performance by collecting detailed time-use data from over 1,100 CEOs across six countries (Brazil, France, Germany, India, the United Kingdom, and the United States). Using machine learning, the authors classify CEOs into two behavioral types: "managers," who focus on operational and one-on-one tasks, and "leaders," who spend more time in high-level and multi-functional meetings with participants from inside and outside the firm together. They find that CEO behavior is predictive of firm performance—but that the match between CEO type and firm needs is what ultimately drives outcomes. 

Key Findings:

• Two distinct CEO behavioral types: Using diary-based time-use surveys and a machine learning clustering algorithm (latent Dirichlet allocation, LDA), the study identifies two "pure" CEO styles. Manager-type CEOs engage more in individual, operational meetings (e.g., plant visits); leader-type CEOs spend more time coordinating across functions and interacting with other executives and bringing internal and external actors together.
• CEO behavior correlates with firm performance: Firms led by leader-type CEOs have significantly higher labor productivity and profits per employee. A one standard deviation increase in the CEO behavior index (toward leader-type behavior) is associated with a 7% increase in firm sales, after controlling for inputs.
• Behavioral effects emerge over time: Firms that appoint leader-type CEOs experience gradual improvements in productivity, especially in years 3–5 after appointment, suggesting the effects are not due to preexisting trends but reflect behavioral impact.
• Not all firms benefit equally from leader CEOs: The paper estimates a firm-CEO assignment model and finds that leader behavior is not universally optimal—some firms perform best with manager-type CEOs. However, matching frictions in the labor market mean 17% of firms in the sample have a CEO whose behavior is suboptimal for their needs.
• Matching frictions matter more in developing economies: The share of mismatched CEO-firm pairs is much higher in Brazil and India (36%) than in high-income countries (5%). Eliminating these mismatches would increase productivity by up to 13% in low- and middle-income settings, helping to close the cross-country productivity gap.

Policy Impact and Relevance:

This study makes a methodological contribution by creating a scalable and objective way to quantify managerial behavior and link it to firm performance. It shows that how CEOs allocate their time varies widely—and meaningfully—across firms, with direct consequences for productivity. Rather than assuming there is a single "best" CEO type, the paper emphasizes that effective leadership is context-dependent.

The findings have practical implications for boards, investors, and policymakers. Improving CEO-firm matching—especially in environments with weak governance or shallow executive labor markets—could generate large economic gains. It also opens a new research agenda focused on organizational fit and management practice heterogeneity across countries and industries.

More broadly, the paper helps explain part of the variation in firm productivity, especially across national boundaries. In doing so, it highlights managerial behavior as an important, measurable lever for improving firm performance and offers a compelling new lens for thinking about leadership in global economic development.