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CEO Influence on EVA and a Planning Horizon of a Company

Student: Strochkov Ilya

Supervisor: Irina Ivashkovskaya

Faculty: Faculty of Economic Sciences

Educational Programme: Corporate Finance (Master)

Year of Graduation: 2020

The purpose of this work is to identify the relationship between the personal characteristics of the CEOs in Russian companies and the creation of positive changes in business value in the companies they head. This work was performed by two authors together: Mikhail Shokhin and Ilya Strochkov. To assess the changes in the value of companies, we used the economic profit indicator - EVA (Economic Value Added), which takes into account the spread of profitability over the required return on risk of capital. The planning horizon is estimated using the composite index CHI (Corporate Horizon Index), developed by McKinsey. The influence of “Superpower” of Russian CEOs on business value and the strategic planning horizon in companies is formulated and evaluated. The superpower of the CEO was assessed by compiling a composite variable that included a set of variables defining some personal characteristics of the CEO. A data sample consisting of 31 Russian companies for the period from 2014 to 2019, the shares of which are included in the calculation base of the Moscow Stock Exchange's main index (IMOEX), contains a unique set of data on Russian CEOs that describes their personal characteristics. This set is a combination of binary variables that characterize human capital and power (the age of the CEO; the percentage of shares owned by the CEO; tenure; whether the CEO holds the position of president; whether he is the chairman of the board of directors; special education in the industry in which the company operates; having an education in economics / finance; having an MBA; having a specialized education; is the director the founder of the company; has experience in the industry). We used both the classic set of variables, traditionally used in scientific research on foreign data, devoted to the problems of CEO, as well as a number of unique characteristics that were not previously considered in the academic literature, but relevant for Russia (connection with the government, belonging to power structures). The concept of “connection with government” means the presence of at least one of the following facts related to the CEO of the company and mentioned in several public sources: • the fact of a long personal acquaintance or close cooperation / collaboration with the President of the Russian Federation in the past; • the fact of joining / being in a party in power; • fact of work in government (does not apply to the power block); • the presence of a parent / close relative who falls under any of the criteria listed above The concept of “belonging to power structures” means the fact of the service / work of the CEO in law enforcement agencies, special services of the Russian Federation (including abolished, disbanded, transformed), or the fact of having a close relative who falls under these criteria. All of the foregoing in this annotation applies equally to both authors. The text of the general study was divided solely for the purpose of clearly and individually demonstrating the results obtained separately for analyzing the relationship of personality characteristics with EVA and CHI, respectively. The novelty of the study, the results obtained, the developed approaches to the studied material in no way depends on how the text of the study was divided and is a product of joint activities. The obtained assessments of the influence of the personal characteristics of general directors on the strategic characteristics of Russian companies were performed for the first time and constitute the novelty of the dissertation.

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