Are foreign-born CEOs held to a higher performance standard? The role of national origin in CEO dismissals

Abstract

Research Summary

Foreign-born chief executive officers (CEOs) are increasingly common in US corporations. However, little is known about whether they are held to the same performance standard as native-born CEOs. We examine whether CEO national origin moderates the relationship between firm performance and CEO dismissal. Drawing on social identity and attribution theories, we argue that CEO foreignness becomes more salient when firm performance is poor, increasing foreign-born CEOs' dismissal likelihood. Using a large sample of US firms, we find that at low levels of performance, the dismissal probability for foreign-born CEOs is 15.96% compared to 4.02% for native-born CEOs. While the increase in foreign-born CEOs in US corporations may reflect the declining importance of national origin for C-suite appointments, boards' evaluations of these “elite migrants” may be biased.

Managerial Summary

Foreign-born leaders are increasingly common in US C-suites and currently manage several global firms, including Google, Microsoft, and Pepsi. But, once hired, are foreign- and native-born CEOs evaluated uniformly by corporate boards? Given that CEOs are more likely to be dismissed when firm performance is low, we compare dismissal likelihoods for foreign- and native-born CEOs when performance is subpar. Using a sample of 11,947 observations from firms in the Standard & Poor's 1500, we find significant disparities in the dismissal likelihoods between the two groups. At low levels of performance and ceteris paribus, the dismissal likelihood for a foreign-born CEO is 15.96% compared to 4.02% for a native-born CEO, highlighting biases relating to foreign origin in CEO evaluations.