Department of Economics

Matched as a Teenager? What Traits of a Million 18-Year-Olds Tell Us about CEOs - Matti Keloharju

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Professor Matti Keloharju, Aalto University School of Business, will present his paper "Matched as a Teenager? What Traits of a Million 18-Year-Olds Tell Us about CEOs".

Coauthors are Renee B. Adams, University of New South Wales; Financial Research Network (FIRN); European Corporate Governance Institute (ECGI) and Samuli Knüpfer, London Business School; Centre for Economic Policy Research (CEPR); Research Institute of Industrial Economics (IFN)

This paper analyzes the role three personal traits—cognitive and non-cognitive ability, and height—play in the market for CEOs. We merge data on the traits of more than one million Swedish males, measured at age 18 in a mandatory military enlistment test, with comprehensive data on their income, education, profession, and service as a CEO of any Swedish company. We find that the traits of large-company CEOs are at par or higher than those of other well-paid professions. For example, large-company CEOs have about the same cognitive ability, and about onehalf of a standard deviation higher non-cognitive ability and height than medical doctors. The traits contribute to pay in two ways. First, higher-ability CEOs are assigned to larger companies, which tend to pay more. Second, the traits contribute to pay over and above the effect of firm size. We estimate that 27-58% of the effect of traits on pay comes from CEO’s assignment to larger companies. Our results are consistent with models in which the labor market allocates higherability CEOs to more productive positions.