CEO TURNOVER AND

FOREIGN MARKET PARTICIPATION

Bruce A. Blonigen^{^} and Rossitza B. Wooster^{^^}

University of Oregon and NBER California State University, Sacramento

NBER Working Paper 9527

Abstract: Anecdotal evidence suggests that new CEOs with foreign backgrounds direct their firms to become more international in their operations. We examine this hypothesis formally using data on U.S. S&P-500 manufacturing firms from1992 through 1997 and biographical information on CEOs’ birth and education locations that allow us to identify changes from U.S.- to foreign-connected CEOs. Robust to a variety of specifications, we find that a U.S. firm’s switch from a U.S. to a foreign CEO leads to substantial increases in the firm’s proportion of its foreign assets and foreign affiliate sales. In fact, our preferred specification indicates that foreign asset and affiliate sales proportions increase 30 and 50%, respectively, for the five years after there is CEO turnover to one with a foreign background. This is in contrast to U.S.-to-U.S. CEO switches in our sample that show no evidence of changes in a firms’ foreign market participation.

These large effects contrast with previous literature that finds little evidence for changes in firm performance with CEO turnover.

Keywords: Multinational Enterprises; Networking; Corporate Governance.

JEL Classification: F23, G3.

* The authors thank Robert Baldwin, Andrew Bernard, Lee Branstetter, Ron Davies, Don Davis, Charles Engel, Jarrad Harford, Keith Head, Robert Lipsey, Anne van den Nouweland, Jim Rauch, Karl Scholz, Robert Staiger, and participants of presentations at the Columbia University, University of Texas, University of Wisconsin and the Western Economic Association meetings for helpful discussions on previous versions of this paper. Blonigen gratefully acknowledges financial assistance from a University of Oregon Richard A. Bray Award.

^{^} Department of Economics, 1285 University of Oregon, Eugene, OR 97403, Ph: 541-346-4680; Fax: 541-346-1243; E-mail: bruceb@oregon.uoregon.edu

^{^^} Department of Economics, California State University, Sacramento, 6000 J Street, Sacramento, CA 95819-6082; Ph: 916-278-7078; Fax: 916-278-5768; E-mail: wooster@csus.edu