CEO age, shareholder monitoring, and the organic growth of European firms

Young CEOs and firm growth. European firms managed by CEOs younger than 45 have grown faster than their counterparts in the period 2009-2014, in terms of both sales and assets, especially when ownership is not concentrated and does not coincide with management. We analyze the role of CEO age in organic growth in a large sample of European manufacturing firms in the period 2009–2014. We find that firms managed by young CEOs grow faster in terms of sales and assets, but not in terms of profitability. Based on an agency framework, we interpret these results as CEOs maximizing their utility (to signal their talent in the market for managers and to achieve a higher compensation linked to firm size) instead of shareholders’ targets (maximization of economic profits). An effective way to re-align the divergent interests of managers and shareholders is monitoring via a more concentrated ownership. Indeed, we find that the relationship between CEO age and firm growth is weaker when ownership is more concentrated . These results bear implications for policy and governance. As for policy, given the well-known “gerontocracy” that affect management (and board members) in many European countries, faster turnover in CEOs could foster aggregate growth via higher business dynamism and a more efficient re-allocation of market shares. As for governance, we show that the independence of managers from shareholders enhances firm growth.