. “The only reason I was on the payroll is because I was the son of the boss,” testified John Tyson, chief executive officer (CEO) of Tyson Food, Inc., in a legal proceeding.16 Promotion of one’s kin in the businessworld is quite common. Showing favoritism based on relationship rather than an objective evaluation of a person’s ability can be a source of controversy. A study of 335 firms investigated the effects of nepotism on corporate performance.17 Each of the firms in the study underwent management transition in that there was a departing CEO who was replaced by a new CEO. All the firms were characterized as having concentrated ownership or founding-family involvement. The sample of 335 firms was split into two groups: (1) the incoming CEO was related by blood or marriage to the departing CEO, to the founder, or to the largest shareholder of the corporation, and (2) the incoming CEO had no relationship to the departing CEO. An incoming CEO classified in Group 1 is referred to as a “family” CEO. Here is an excerpt from the study: When firms are classified by incoming CEOs’ family links, I find that firms that promote family CEOs undergo average declines in unadjusted OROA [operating return on assets] of 1.88 percentage points, significant at the one-percent level. In contrast, the difference in profitability of firms that appoint non-family CEOs is +0.21 percentage points, and is not different from zero at conventional levels. The resulting difference-in-differences is −2.09 percentage points, significant at the one-percent level Howwould you explain the three conclusions found in the excerpt

to someone who knows no statistics? Include an explanation of the statistical significance for each of the conclusions.


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