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Article

Founder CEOs and Utility Firms’ Financial Choices

by
Md Asif Ul Alam
1,*,
Md Maruf Ul Alam
2 and
Toufiq Nazrul
3
1
Department of Business Administration, College of Business, Kutztown University of Pennsylvania, Kutztown, PA 19530, USA
2
Department of Finance, Sam M. Walton College of Business, University of Arkansas, Fayetteville, AR 72701, USA
3
Schroeder Family School of Business Administration, University of Evansville, Evansville, IN 47722, USA
*
Author to whom correspondence should be addressed.
J. Risk Financial Manag. 2025, 18(10), 531; https://doi.org/10.3390/jrfm18100531
Submission received: 12 August 2025 / Revised: 11 September 2025 / Accepted: 13 September 2025 / Published: 23 September 2025
(This article belongs to the Special Issue Research on Corporate Governance and Financial Reporting)
Versions Notes

Abstract

Founder CEOs lead a significant number of public U.S. firms, and these firms often differ from other firms led by non-founder CEOs in terms of various important firm characteristics. In our paper, we investigate the financial choices of founder-CEO-led firms and non-founder-CEO firms in a utility industry setting within the context of the U.S. Our results show that founder CEO status has a significant positive influence on financial choices (cash holdings, investment ratio, equity ratio, and interest coverage) of utility companies. After addressing potential causality and performing additional robust measures, our findings still hold and suggest that CEO origin is important for explaining variation in financial choices of utility companies. Overall, our findings make a valuable contribution to the literature on utility firms, founder CEOs, and CEO characteristics by connecting them through an angle that is previously unexplored.

1. Introduction

A firm’s financial choices are critical for its growth and its subsequent survival. Financial choices are part of a firm’s strategic actions (Bertrand & Schoar, 2003; Zacharias et al., 2015). Strategic actions are crucial for firms, as they reflect a firm’s long-term plans and also have a direct impact on a firm’s competitive advantages (Hoskisson et al., 1999). These are essential for firms’ survival as these actions direct firm behaviors, define strategic directions (Rumelt et al., 1991), and, in turn, influence firm performance (Reger et al., 1992). Cash holdings, investment ratio, equity ratio, and interest coverage are the commonly used financial choice variables (Zacharias et al., 2015). Cash holdings act as a buffer against unpredictable incidents, such as revenue fluctuations, economic downturns, and unexpected expenses. Higher cash holdings also allow companies to pursue opportunities without relying on costly external financing. Investment in capital expenditures (CAPEX) signifies a company’s commitment to growth and subsequent firm performance (Banerjee & Deb, 2023). A high equity ratio implies a firm’s strong financial health and offers the firm financial flexibility (Yung et al., 2015). A high interest coverage ratio implies a company’s strong ability to meet its debt obligations.
Given the critical role of financial decisions in shaping firms’ long-term sustainability, it is reasonable to expect that top executives, particularly chief executive officers (CEOs), significantly influence these choices. CEOs often hold prominent positions on executive boards and exercise considerable power (Finkelstein, 1992). A body of research says that a firm’s policies, structure, processes, and performance are influenced by its top executives (Boeker, 1997; Miller & Toulouse, 1986; Papadakis & Barwise, 2002; Chatterjee & Hambrick, 2007). Similarly, past research on strategic leadership argues that top executives usually make firms’ strategic decisions and directly impact the strategic actions (Hambrick, 2007; Hambrick & Mason, 1984). Several studies highlight that managers, especially CEOs, are among the most critical forces within organizations (Gupta & Govindarajan, 1984; Miller & Dröge, 1986; Zajac, 1990). They set collective goals, embody organizational values, shape company culture and disclosure policies (Schein, 1992; Nazrul et al., 2022; Nazrul & Mousa, 2025), and determine strategic direction (Tichy & Cohen, 1997). Together, these leadership actions profoundly influence the organization as a whole and ultimately affect firms’ performance.
Although research has examined various CEO characteristics as potential determinants of key corporate decisions, the empirical findings remain inconclusive. Bertrand and Schoar (2003) find that CEO age is negatively associated with leverage and having an MBA does not significantly influence capital structure choices. In contrast, Malmendier et al. (2010) and Frank and Goyal (2009) observe a positive relationship between CEO age and leverage, as well as between MBA education and leverage, respectively. Custódio and Metzger (2014) further suggest that CEOs with financial expertise tend to hold less cash, utilize more debt, and engage in more share repurchases. Additionally, tenure is found to have divergent effects; Jensen and Meckling (1979) argue that shorter tenure increases project hurdle rates and leads to underinvestment, whereas Hambrick et al. (1993) and Chikunda et al. (2025) posit that long-tenured CEOs become complacent, show strategic rigidity or managerial entrenchment, and negatively impact financial performance. These contrasting findings underscore the complexity and ongoing debate in understanding how specific CEO characteristics influence corporate decision-making.
Overall, the contrasting findings from the existing literature suggest that inconclusive evidence exists regarding the influence of CEO characteristics, such as age, educational background, financial expertise, and tenure, on firms’ strategic financial decisions. Empirical findings often yield contradictory results concerning their effects on leverage, cash holdings, share repurchases, investment behavior, and overall firm performance. Therefore, it can be said that seemingly apparent managerial characteristics do not determine the financial choices of firms. Existing research still lags in identifying the key CEO characteristics that influence firms’ financial choices, which underscores the need for further research in the broad domain of CEO characteristic-based papers. Additionally, no industry-specific research exists on how CEO characteristics affect financial choices within specific industries. Hence, we aim to bridge these gaps by examining the impact of a critical CEO characteristic, such as CEO origin, on various corporate financial decisions within the context of a specific industry subgroup, such as the utility industry.
Furthermore, a large number of companies are either directly run or significantly monitored by their founder or the family members of the founder (Burkart et al., 2003). A recent study finds that almost 11% of public U.S. firms are run by their founders (Fahlenbrach, 2009). The past literature finds that founder CEOs often exhibit different attitudes compared to non-founder CEOs when it comes to various firm decisions. From a governance standpoint, founder CEOs are often considered to possess more organizational skills, more controlling and decision-making power, the potential to reduce the principal-agent problem due to having considerable equity stakes, different attitudes toward risk and investment decisions, and more emotional attachment to their firm.
Taking these factors into consideration, how do founder CEOs shape firm financial decisions in a highly regulated industry like utilities? This paper addresses this critical question and, in the process, makes several contributions. It adds to the literature on family and founding firm status by focusing on the utility sector, where long investment horizons and strict regulations create a unique setting. The industry’s homogeneity in business activity and financial structure further strengthens its suitability for this analysis.
We find several interesting results. Our main result suggests that founder-CEO-led utility companies differ significantly from other utility companies in terms of various financing, investing, and firm-level characteristics. In other words, the founder CEO status of utility companies has a significant positive impact on their financial choices, which materializes into higher cash holdings, investment ratio, equity ratio, and interest coverage. After using propensity score matching and entropy balancing methods to control for different firm-level differences between founder- and non-founder-CEO-led utility companies, our results still hold. Furthermore, to address endogeneity concerns related to past performance influencing our independent variables, we re-estimate our baseline regression model using lagged return on equity as an independent variable. The results continue to show that founder CEOs positively impact utility firms’ financial choices.
Our study makes a few key contributions. First, it contributes to the corporate governance literature investigating the variability of financial choices and characteristics of firms with founder versus non-founder CEOs by offering a new dynamic angle involving utility firms. Most prior research in this subdomain primarily focuses on non-utility company samples (e.g., Anderson & Reeb, 2003; Villalonga & Amit, 2006, 2010; Dyck & Zingales, 2004; Amore et al., 2011). However, to the best of our knowledge, our paper is the first study that focuses explicitly on utility companies to examine the extent to which a utility company’s financial choices are affected by having a founder versus a non-founder CEO at the top of the C-suite.
Our paper also makes an important contribution to the literature on utility company CEOs, as the volume of literature examining the influence of CEO characteristics on utility companies’ financial choices is very scarce. For the studies that are available within this subdomain, they primarily investigate CEO characteristics such as a utility company CEO’s age (Hadlock et al., 2002), education (Palia, 2000), or remuneration (Carroll & Ciscel, 1982; Joskow et al., 1993). Our paper examines the CEO characteristics of utility firms from a new angle by specifically investigating the influence of founder CEO status on the financial choices of utility firms.
Overall, the results of this paper show that founder-CEO-led utility companies differ significantly from non-founder-CEO-led utility companies. Having higher cash holdings, investment ratio, equity ratio, and interest coverage ratio of utility companies led by founder CEOs suggests that these CEOs have a positive influence on these financial choices.
The rest of our paper is divided into the following sections. Section 2 covers the literature review on CEOs’ influence on firms’ key decisions, founder- and founder-family-led firms, capital structure of utility companies, and CEOs of utility companies. A brief discussion and summary of the data and important variables are provided in Section 3. The methodologies we used in our paper are described in Section 4. Our results are discussed in detail in Section 5, and conclusions are provided in Section 6.

2. Background Literature and Hypothesis

2.1. CEOs’ Influence on Firms’ Key Decisions

Upper echelon theory (Hambrick, 2007; Hambrick & Mason, 1984) and the strategic choice perspective (Child, 1997) suggest that CEO-level effects significantly influence a firm’s performance. Firms are often considered reflections of their top management (Hambrick & Mason, 1984), as top executives develop the firm’s agenda based on their experiences, values, and personality (Dutton & Jackson, 1987; Hambrick, 2007). Hence, according to the strategic leadership theory, information concerning the firm is always channeled to the CEOs first, before critical firm-level strategic decisions are undertaken and important firm-level policies are enacted (Hambrick, 2005; Nadkarni & Barr, 2008). Consequently, numerous past research studies have documented that CEOs have a significant impact on firms’ strategic decisions (Boeker, 1997; Eisenhardt & Schoonhoven, 1990; Miller & Dröge, 1986; Miller et al., 1982; Miller & Toulouse, 1986; Wiersema & Bantel, 1992). Overall, the existing literature suggests that CEOs play a pivotal role in shaping firms’ strategic decisions, as their experiences, values, and personalities significantly influence the creation and implementation of corporate-level policies and decisions, reflecting the central premise of upper echelon and strategic choice perspective theories.

2.2. Founding/Family Firms

Past research has mixed findings regarding the role of founder CEO status on the firms’ key decisions. For instance, minority shareholders are often deprived of the firm’s profits if controlling shareholders make decisions that are disadvantageous to them (e.g., Meckling & Jensen, 1976; Fama & Jensen, 1983). Conversely, increased monitoring exists with combined ownership and controlling power, often leading to higher profits and market returns compared to non-founder-family CEO-led firms (Demsetz & Lehn, 1985; Anderson & Reeb, 2003). Existing research also finds that firms have a higher market value when founders hold the position of either CEO or chairman (Villalonga & Amit, 2006). Similarly, top executives of family-owned firms exhibit a more forward-looking attitude when making decisions (Stein, 1988, 1989; Nwafor et al., 2025), as the investment horizons of these firms are typically longer (e.g., Casson, 1999; Chami, 2001). Founder CEOs’ prior business experience can also reduce the negative impact of executive turnover (Cho et al., 2022), and longer founder tenure often has a positive influence on a firm’s long-term survival (Ahn, 2018). Cumulatively, while the impact of founder CEOs on firm decisions shows mixed evidence, particularly in the context of minority shareholder interests, the literature suggests that the founder CEO status can generally enhance firm performance, market value, and long-term strategic orientation. Such enhancements are made possible because of the founder CEOs’ concentrated ownership models, prior relevant industry experience, and vast market knowledge through extended tenure.

2.3. Utility Company Capital Structure

It is common practice for regulated utility companies in the U.S. to use high leverage (Barclay et al., 2003). Spiegel and Spulber (1994) show that, when utility firms issue debt, the regulators raise the regulated price to reduce the probability of those firms’ bankruptcy. Similarly, Taggart (1981) shows that regulators raise prices to reduce the financial distress of utility firms when they issue debt. However, there is always a possibility that firms will become bankrupt, as the extent to which the regulated price is increased may be insufficient to completely ward off bankruptcy. In line with these concerns, regulators have indicated their intention to closely monitor the financial leverage of energy utilities in order to discourage speculative practices that could threaten their financial stability. At the same time, the capital structure characteristics of utility firms play an important role in lowering agency costs (Hansen et al., 1994). Greater reliance on debt imposes repayment discipline on managers of utility firms and limits the inefficient use of free cash flow, while dividend policies that emphasize higher payouts strengthen market oversight of both managerial decisions and regulatory practices (Hansen et al., 1994). Taken together, these dynamics highlight how leverage and payout policies not only influence bankruptcy risk but also serve as critical tools for aligning managerial behavior with the long-term financial health of utility firms.
It is worth noting, however, that there are a few key characteristics of the regulatory environment itself that influence these utility firms. For example, the regulatory environment often has a critical impact on utility firms’ capital structure. Taggart (1981) demonstrates that electric utilities tend to increase their debt-to-equity ratios following the introduction of rate regulation across various U.S. states. One interpretation is that state regulation created a more secure business environment for utilities, thereby encouraging greater leverage. However, it is also possible that some utilities strategically increased their debt-to-equity ratios to gain price concessions from regulators. Dasgupta and Nanda (1993) found in their research that U.S. electric utility firms use a higher amount of debt in a less pro-firm regulatory environment. Ovtchinnikov (2010) finds that, when utility firms are subjected to some form of deregulation, their usage of debt reduces significantly. Additionally, the quality of the regulatory environment also determines the debt of U.S. utility firms. Rao and Moyer (1994) demonstrate that utility firms react to their regulatory climate by adjusting capital structure. Utility firms use a higher proportion of debt in the presence of regulatory stringency. Thus, both the degree of deregulation and the quality of regulation significantly influence the level of debt employed by utility firms.

2.4. Utility Company CEOs

Only a few studies currently exist about utility company CEO characteristics. While investigating the CEOs of electric and gas utility firms, Hadlock et al. (2002) found that utility CEOs are relatively older when they are appointed to the role. Those CEOs have less prestigious educational backgrounds (see also Palia, 2000) and, on many occasions, they have a legal background. Carroll and Ciscel (1982) show that CEOs working in a regulatory setting earn significantly lower basic yearly remuneration. Joskow et al. (1993) also find similar results, indicating that CEOs of regulated firms earn less compared to those of similar firms operating in an unregulated setting.
Overall, the limited research on utility company CEOs suggests that they tend to be older at the time of appointment, possess less prestigious educational backgrounds, earn relatively lower compensation, but frequently bear past legal expertise. However, no utility company CEO characteristic-based study currently exists that directly examines the effect of founder CEO status in the context of utility companies, reinforcing the originality of our research question and contribution goals.

2.5. Hypothesis

Our main theoretical proposition appears as follows, building on the existing discussions above. According to upper echelon theory (Hambrick, 2007; Hambrick & Mason, 1984) and the strategic choice perspective (Child, 1997), the characteristics and decisions of CEOs significantly influence the determination of firm performance. Empirical evidence further indicates that founder CEOs tend to have a positive impact on firm performance. This effect is attributed to their founder status, accumulated market experience, and commitment to long-term company objectives.
Given these insights, it is reasonable to hypothesize that the founder status of a CEO is likely to have a positive influence on the financial choices of utility companies. Specifically, founder CEOs may be associated with higher cash holdings, increased investment ratios, larger equity ratios, and stronger interest coverage. This leads to our central hypothesis:
H1: 
Founder CEO status has a positive impact on firms’ financial choices, which translates into higher cash holdings, investment ratios, equity ratios, and interest coverage.

3. Data Description

3.1. Sample

We utilize various data sources to investigate the differences in financial choices between utility companies led by founder CEOs and those led by non-founder CEOs. We utilize utility company CUSIPs obtained from the S&P Global database to collect information on utility company CEOs from the S&P’s ExecuComp database from 1990 to 2022. By using the first and last names of the CEOs, we hand-collect data to determine whether the CEO of a utility company is a founder or a non-founder. We validate the founder CEO status by utilizing their annual reports and websites of utility companies, following a similar approach to Devos et al. (2024). To double-check our data, we validate it through multiple other web-based sources, such as Google searches, LinkedIn, and the Wall Street Journal, similar to Devos et al. (2024). Financial information of utility companies is collected from the WRDS database.

3.2. Variables

Following Zacharias et al. (2015), we use cash holdings, investment ratio, equity ratio, and interest coverage as firms’ financial choice variables. Cash holdings ratio is calculated as the ratio of cash and short-term investments over property, plant, and equipment (PPE). Investment ratio is the ratio of capital expenditures in year i over property, plant, and equipment (PPE) in year i − 1. Equity ratio is the ratio of common equity to total assets. Interest coverage is the ratio of earnings before interest and taxes (EBIT) to interest expenses, expressed as a percentage.
Considering the existing literature on utility companies and capital structure, we incorporate different commonly used utility-company-level characteristics as control variables in our analysis. Our control variables include the ratio of net income over total equity (return on equity), the natural logarithm of total assets (firm size), the ratio of the share price times the common share outstanding over shareholders’ equity (market-to-book ratio), the ratio of interest expense over total debt (interest-to-debt ratio), number of years found in Compustat (firm age), the volatility of earnings over the past five years (earnings volatility), and the ratio of property, plant, and equipment over total assets (asset tangibility).

3.3. Descriptive Statistics

Our sample consists of the utility companies found in the S&P’s ExecuComp databases from the period 1990 to 2022. A brief description of the variables used in our analysis is presented in Table 1. The mean, standard deviation, and quartile values of the variables we used in our analysis are also provided in Table 1. We have a total of about 5110 utility company-year observations.

3.4. Characteristic Differences Between Founder-CEO- and Non-Founder-CEO-Led Utility Companies

In Table 2, we present the differences between founder-led and non-founder-led utility companies. We find statistically significant differences between founder- and non-founder-CEO-led utility companies in terms of different company-level characteristics, i.e., size, market-to-book ratio, tangibility, firm age, interest-to-debt ratio, and earnings volatility. Considering these differences in firm characteristics, it is imperative to control these characteristics when comparing the financial choices of founder CEO utility companies to those of non-founder CEO utility companies.
Table 2 also presents the differences between the financial choices of founder-CEO-led utility companies and non-founder-CEO-led utility companies. These differences between financial choices are both economically and statistically significant.

4. Methodology

We use the following regression equation for our utility company sample to test whether founder CEO status significantly influences a firm’s different financial choices:
Firm financial choiceit = β0 + β1Founder Dummyit + γXit + δt + εit
Here, we use each financial choice of utility company i in year t as our dependent variable separately. Our key independent variable here is Founder Dummyit. This is an indicator variable equal to 1 if the CEO is a founder and 0 otherwise. The coefficient of interest, β1, determines the variance of individual financial choices of founder-CEO-led utility firms and non-founder-CEO-led utility firms. Xit denotes the widely used utility company characteristics we used here as control variables. Our control variables include the log of total assets, return on equity, market-to-book ratio, interest-to-debt ratio, firm age, earnings volatility, and tangibility. A brief definition of all of the variables used in our analysis is provided in the Appendix A. δt represents the year fixed effect. β0 is the constant and εit is the error term.

5. Main Results

5.1. Baseline Regression Results

Our analysis begins by examining whether CEO founder status affects a utility company’s financial decisions. We use cash holdings, investment ratio, equity ratio, and interest coverage as our dependent variables separately in Equation (1) and conduct our univariate and multivariate regression analysis.
The univariate and multivariate regression results, showing the impact of founder CEO status on utility firms’ financial choices, are reported in Table 3. The univariate regression results from Equation (1) with cash holding as the dependent variable are reported in Column (1) of Table 3, with year fixed effects. The estimated coefficient of the founder CEO dummy variable is positive (0.106) and statistically significant with a t-statistic of 5.30, indicating that a founder CEO utility company has higher cash holdings than a non-founder CEO utility company. Corporate cash holdings are important as these often provide firms with financial resilience and act as a buffer against unpredictable incidents, i.e., revenue fluctuations, economic downturns, unexpected expenses, etc. Cash holdings also shape firm reactions during geopolitical events (Alam et al., 2023) and are used as a safeguard when companies face climate-change-related issues (Choi et al., 2025; Li & Zhang, 2025). The results of the multivariate regression from Equation (1) with cash holding as the dependent variable are presented in Column (2) of Table 3. The results show that the positive effect of the founder CEO on a utility company’s cash holding is not affected by potential confounding variables, including utility company size, return on equity, market-to-book ratio, interest-to-debt ratio, firm age, earnings variability, and tangibility. The estimated coefficient of the founder CEO dummy variable suggests that founder-led utility firms have higher cash holdings by 3.7% compared to non-founder-led utility firms, and the results are statistically significant at the 5% level. In addition, the results show that utility companies with smaller assets, lower age, higher growth opportunities, higher earnings volatility, and lower tangible assets are associated with higher cash holdings. The results support that utility companies with founder CEOs are associated with higher cash holdings.
When we use another financial choice, investment ratio, as our dependent variable in Equation (1), we see that the coefficient of the founder CEO dummy variable is positive (0.077) and statistically significant. The univariate regression results are reported in Column (3) of Table 3. The result indicates that a utility company led by a founder CEO has a higher investment ratio compared to its non-founder CEO counterparts. A higher investment ratio generally indicates a company’s commitment to growth, modernization, and expansion of its operational capacity. The result of the multivariate regression is presented in Column (4) of Table 3. The estimated coefficient of the founder CEO dummy variable suggests that founder-led utility firms have a higher investment ratio by 4.2% compared to non-founder-led utility firms, and the results are highly statistically significant at the 1% level. The results further support that utility companies, led by founder CEOs, have a higher investment ratio after controlling for utility company size, return on equity, market-to-book ratio, interest-to-debt ratio, firm age, earnings volatility, and tangibility.
Column (5) of Table 3 shows the univariate regression results from Equation (1) with equity ratio, another financial choice, as the dependent variable. The estimated coefficient of the founder CEO dummy variable is 0.121, and it is statistically significant at the 1% level. It means that, by having a founder CEO, a utility company can have a higher equity ratio than a utility company with a non-founder CEO. An equity ratio measures the proportion of a company’s total assets financed by shareholder equity. A high equity ratio implies a firm’s strong financial health and offers several advantages, i.e., less reliance on debt, a buffer against bankruptcy, favorable loan terms, and increased investor confidence. Additionally, the result of the multivariate regression has been presented in Column (6) of Table 3. The estimated coefficient of the founder CEO dummy variable suggests that founder-led utility firms have a higher equity ratio by 9.6% compared to non-founder-led utility firms, and the results are highly statistically significant at the 1% level. The results show that utility companies with a founder CEO have a higher equity ratio, even after controlling for the control variables.
Column (7) of Table 3 presents the univariate regression results from Equation (1) with the interest coverage as the dependent variable. The estimated coefficient of the founder CEO dummy variable is 0.163. The result is statistically significant at the 1% level. Higher interest coverage indicates a company’s strong ability to meet its debt obligations, suggesting financial stability and a lower risk of default. Firms with a higher interest coverage also have higher credibility to investors and lenders. The multivariate regression result presented in Column (8) is also positive and highly statistically significant at the 1% level and suggests that founder-led utility firms have a higher interest coverage by 14.1% compared to non-founder-led utility firms. The results show that utility companies with a founder CEO have a higher interest coverage even after controlling for different utility company characteristics.

5.2. Propensity Score Matching

There is a possibility that our findings might be biased, as firm characteristics of utility firms with founder CEOs and utility firms with non-founder CEOs differ significantly. To eliminate this possibility, we analyze a sample of utility companies with similar company characteristics by using a propensity score matching technique. We use the founder CEO of utility companies as the treatment group. The matching variables we use are the utility company characteristics that we used previously as control variables. We compare each of our financial choice variables of the founder CEO utility companies to other utility companies that are matched via a propensity score matching procedure.
Panel A of Table 4 shows that there are no significant utility company characteristic differences between the treated and the control groups. Thus, by using propensity score matching, all the observable differences have been removed between the two groups, and we can say that the differences in the financial choices are likely due to the CEOs’ founder or non-founder status.
Panel B of Table 4 presents our propensity score matching estimates. The results show that CEO founding status has a positive influence on financial choices compared to their matched non-founder CEO companies in our utility company setting. The positive influence on financial choices holds for cash holdings (0.2171 vs. 0.1056, t-stat = 7.60), investment ratio (0.2276 vs. 0.1462, t-stat = 11.06), equity ratio (0.4286 vs. 0.3114, t-stat = 14.27), and interest coverage ratio (0.2227 vs. 0.0531, t-stat = 16.57). The results from propensity score matching analysis provide further support for our baseline regression results.

5.3. Entropy Balancing

While propensity score matching (PSM) has become a common approach, it often results in the exclusion of many observations from the original dataset. To overcome this drawback, we adopt the entropy balancing method proposed by Hainmueller (2012) to achieve covariate balance with binary treatments. This technique applies a maximum entropy reweighting procedure that adjusts unit weights so that the reweighted treatment and control groups meet a wide range of predetermined balance conditions. In estimating treatment effects, we impose equality on means, variances, and skewness, thereby reducing reliance on model specifications. As a result, entropy balancing ensures that the treatment and control groups are aligned across multiple covariate moments, improving balance without discarding data. The regression analysis from the reweighted subsample in Table 5 further confirms that the utility companies with founder CEOs have a positive influence on financial choices compared to the otherwise indistinguishable utility companies.

5.4. Additional Robustness Test

The results of our analysis suggest a potential causal relationship between financial choices and firm performance. However, endogeneity among independent variables has been a common phenomenon in capital structure studies. Pecking order theory suggests that better firm performance can influence a firm’s capital structure. Conversely, tradeoff theory says that capital structure choice can influence firm performance. The model we used in our study may indicate a potential causal relationship between each financial choice and the performance variable. On one hand, performance could lead to each financial choice but, on the other hand, each financial choice can influence performance. We, therefore, use a one-year lagged performance variable to deal with potential endogeneity between each financial choice of the current year and the past year’s firm performance, similar to the approach by González et al. (2013). Specifically, we use a one-year lagged firm performance variable (ROE) to deal with potential endogeneity concerns between the current year’s financial choices and the past year’s firm performance.
Table 6 shows the regression result when we use one-year lagged ROE to deal with the endogeneity issue between firms’ financial choices and performance. When our dependent variable is cash holdings, we find that the estimated coefficient of our founder CEO is positive (0.046), and the result is statistically significant. The estimated coefficient of founder CEO is positive and economically meaningful (0.036) when we use the investment ratio as our dependent variable. The estimated coefficients of the founder CEO are also positive and economically meaningful when we use the equity ratio and interest coverage as our dependent variables separately. The results further support that founder CEOs of utility companies have a positive impact on different financial choices.
Taking together our baseline results, propensity score matching analysis, entropy balancing, and robustness analysis, it is evident that a utility company’s founder CEO status influences its financial choices measured by higher cash holdings, investment ratio, equity ratio, and interest coverage ratio. Our findings are also economically and statistically significant when we control for other confounding firm characteristics, such as utility company size, return on equity, market-to-book ratio, interest-to-debt ratio, firm age, earnings volatility, and tangibility, which can potentially influence a utility company’s strategic actions.

6. Conclusions

This study demonstrates that founder CEOs significantly influence the financial decisions of utility firms, resulting in higher cash holdings, investment, and equity ratios, as well as improved interest coverage, compared to non-founder-led firms. These advantages translate into greater financial flexibility and long-term sustainability. Our findings remain robust across multiple methods, including propensity score matching, entropy balancing, and lagged performance controls. Overall, the evidence underscores the distinct and valuable governance role founder CEOs play in shaping superior financial strategies, particularly in the context of utility companies.
Our study contributes to the existing research on corporate governance, which utilizes upper echelons theory, agency theory, and managerial myopia theory as its theoretical framework. Our findings add to the upper echelons theory by demonstrating that a CEO’s founding status plays a significant role in shaping a firm’s financial choices. Additionally, our results indicate that founder CEOs exhibit less myopia by positively influencing their firm’s strategic financial choices, thereby enhancing long-term prospects. We also find that agency cost is potentially lower in founder-CEO-led utility firms, as these CEOs have a favorable impact on the firm’s strategic actions.
Our results also offer valuable insights for investors, stakeholders, and policymakers in the utility sector, as understanding the financial decisions made by founder CEOs could help assess their commitment to the long-term sustainability of the firm. The higher levels of cash reserves, investment and equity ratios, and interest coverage in founder-led utility companies indicate that these firms possess greater financial flexibility, maintain lower financial volatility and improved stability, and are more resilient during economic downturns.
Similar to prior research, our study has certain limitations. Our study is adapted to the context of the utility industry, which may mean that specific findings are not generalizable to all industries. Utility firms generally survive for a prolonged period of time, as validated by our average ages reported for them in Table 1. This would not be the case for industries with a high turnover of firms, such as the recreation and amusement industry. Hence, in industries such as recreation and amusement, high survivorship bias could significantly affect the quality of financial choices made by their member firms, regardless of whether their CEOs are potential founders or not. Additionally, other CEO attribute-based similarities or differences between the founder and non-founder groups, such as CEO political ideology or narcissism, for example, are beyond the scope of our research and could be viable areas for future research on founder CEOs in general. Although our study provides strong empirical evidence regarding the impact of founder CEOs on various financial choices within the utility sector, it does not specifically investigate whether these decisions result in better or worse financial performance for the firm. Future research could investigate how financial choices of utility companies led by founders differ from those led by non-founder CEOs, particularly in terms of commonly used financial performance measures in the literature, such as stock performance, return volatility, dividend yield, asset allocation, and overall wealth maximization for shareholders. Although this study focuses on the impact of founder CEOs on the financial decisions of utility firms, future research could examine how alternative ownership types, such as institutional investors, influence these choices.

Author Contributions

Conceptualization, M.A.U.A.; methodology, M.A.U.A., T.N.; software, M.M.U.A.; validation, T.N.; formal analysis, M.M.U.A.; investigation, M.A.U.A., M.M.U.A., T.N.; resources, M.M.U.A.; data curation, M.A.U.A., T.N.; writing—original draft preparation, M.A.U.A.; writing—review and editing, T.N.; visualization, M.M.U.A.; supervision, M.A.U.A., T.N.; project administration, M.A.U.A., T.N. All authors have read and agreed to the published version of the manuscript.

Funding

This research received no external funding.

Institutional Review Board Statement

Not applicable.

Informed Consent Statement

Not applicable.

Data Availability Statement

The authors have declared that this research is based on publicly available data.

Conflicts of Interest

The authors declare no conflicts of interest.

Appendix A. Variable Definitions

VariableDefinition
Founder CEO dummyAn indicator variable is set to one if a utility firm’s CEO is a founder and zero if otherwise.
Return on equityThe ratio of net income to total equity.
Firm sizeThe natural logarithm of total assets.
Market-to-book ratioThe market value of equity divided by the book value of equity.
Interest-to-debt ratioThe ratio of interest expense over total debt.
Firm ageNumber of years found in Compustat.
Earnings volatilityThe volatility of earnings over the past five years.
TangibilityThe ratio of property, plant, and equipment to total assets.
Cash holdingsRatio of cash and short-term investments over property, plant, and equipment (PPE).
Investment ratioRatio of capital expenditures in year i over property, plant, and equipment (PPE) in year i − 1.
Equity ratio
Interest coverage		Ratio of common equity over total assets.
Ratio of earnings before interest and taxes (EBIT) over interest expense and divided by 100.

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Table 1. Summary statistics.
Table 1. Summary statistics.
VariablesMeanMedianStd. Dev.25th Percentile75th PercentileObs
Founder CEO Dummy0.0670000.2500000005110
ROE0.0930.1100.2510.0720.1425110
Firm Size8.2458.2871.6897.0899.5355110
Market-to-Book ratio2.2171.7072.0931.3002.3975110
Interest-to-Debt ratio0.0640.0640.0280.0480.0775110
Firm Age32.68433.00017.94318.00046.0005110
Earnings Volatility0.0210.0100.0370.0040.0235110
Tangibility0.6230.6580.1810.5270.7575110
Cash Holdings0.1130.0260.2630.0090.0925110
Investment ratio0.1520.1130.1330.0760.1805110
Equity ratio0.3190.3090.1500.2510.3805110
Interest coverage 0.0640.0300.1880.0180.0435110
Note: This table reports the summary statistics for the main variables used in empirical analysis. The sample is restricted to utility firms recorded in the ExecuComp database from 1990 to 2022. Variables have been winsorized at the 1% and 99% tails of the distributions to avoid the influence of extreme observations. The variables are defined in Appendix A (Source: Authors).
Table 2. Summary statistics—founder CEO and non-founder CEO utility firms.
Table 2. Summary statistics—founder CEO and non-founder CEO utility firms.
Founder CEO Utility FirmsNon-Founder CEO Utility FirmsDifferences
VariablesMeanMedianStd. Dev.ObsMeanMedianStd. Dev.ObsMean Spread
ROE0.0980.1090.2553420.0930.1100.25047680.005
Firm Size7.9697.8881.6583428.2658.3031.6904768−0.296 ***
Market-to-Book ratio2.5411.9862.5653422.1941.6882.05447680.347 ***
Interest-to-Debt ratio0.0520.0550.0343420.0650.0640.0274768−0.013 ***
Firm Age25.34024.00014.41734233.21034.0018.0574768−7.868 ***
Earnings Volatility0.0300.0150.0513420.0200.010.03647680.010 ***
Tangibility0.5710.5790.1853420.6270.6610.1804768−0.056 ***
Cash holdings0.2170.0920.3623420.1060.0240.25347680.111 ***
Investment ratio0.2280.2020.1523420.1460.1090.13047680.082 ***
Equity ratio0.4290.4400.2113420.3110.3060.14147680.118 ***
Interest coverage 0.2230.0340.4643420.0530.0300.14347680.170 ***
Note: This table compares the summary statistics for the main variables used in the empirical analysis between utility firms with founder CEOs and non-founder CEOs. This sample is restricted to utility firms recorded in the ExecuComp database from 1990 to 2022. Significance at the 1%, 5%, or 10% level is shown with 3, 2, or 1 asterisk, respectively. Variables have been winsorized at the 1% and 99% tails of the distributions to avoid the influence of extreme observations. The variables are defined in Appendix A (Source: Authors).
Table 3. Baseline regression results.
Table 3. Baseline regression results.
(1)(2)(3)(4)(5)(6)(7)(8)
VariablesCash HoldingsCash HoldingsInvestment RatioInvestment RatioEquity RatioEquity RatioInterest Coverage Interest Coverage
Founder CEO Dummy0.106 ***0.037 **0.077 ***0.042 ***0.121 ***0.096 ***0.163 ***0.141 ***
(5.30)(2.23)(9.22)(5.28)(10.40)(9.01)(6.55)(6.03)
ROE 0.020 0.000 0.021 0.071 ***
(0.99) (0.03) (1.51) (7.96)
Firm Size −0.025 *** −0.009 *** −0.030 *** −0.024 ***
(−11.23) (−7.08) (−19.57) (−10.71)
Market-to-book 0.014 *** 0.005 *** −0.002 0.009 ***
(5.59) (3.74) (−1.06) (5.76)
Interest-to-debt ratio −0.226 −0.748 *** −0.971 *** −0.533 **
(−0.79) (−6.58) (−6.59) (−2.14)
Age −0.001 *** −0.001 *** −0.001 *** −0.000
(−6.26) (−11.37) (−6.21) (−0.31)
Earnings Variability 0.893 *** 0.358 *** −0.544 *** 0.077
(4.89) (4.16) (−4.97) (0.64)
Tangibility −0.638 *** −0.103 *** 0.074 *** −0.017
(−18.24) (−7.41) (5.26) (−0.94)
Constant0.106 ***0.715 ***0.146 ***0.367 ***0.311 ***0.616 ***0.054 ***0.268 ***
(28.82)(16.71)(80.83)(21.64)(151.94)(33.63)(25.72)(9.93)
Observations51105110511051105110511051105110
R-squared0.0230.3600.0900.2410.0470.2050.0630.132
Year FEYesYesYesYesYesYesYesYes
Note: The table reports regression estimates connecting the financial choices of utility firms to whether their CEOs are founders. We use each different financial choice (i.e., cash holdings, investment ratio, equity ratio, and interest coverage) as a dependent variable separately and report the univariate and multivariate regression results in each column. The independent variables are founder CEO dummy and firm characteristics. T-statistics based on robust standard errors are reported in parentheses. Significance at the 1%, 5%, or 10% level is shown with 3, 2, or 1 asterisk, respectively. All variables are defined in Appendix A (Source: Authors).
Table 4. Propensity score matching results.
Table 4. Propensity score matching results.
Panel A. Propensity Score Matching Difference in Firm Characteristics.
VariablesTreatedControlsDifferencet-Statistic
ROE0.098050.086970.011080.49
Firm Size7.96867.9879−0.0193−0.15
Market-to-Book ratio2.54142.8581−0.3167−1.54
Interest-to-Debt ratio0.052140.05473−0.00259−1.03
Firm Age25.34223.4711.8711.61
Earnings Volatility0.030230.03179−0.00156−0.40
Tangibility0.571440.557580.013860.89
Panel B. Propensity Score Matching Estimator.
Cash holdings0.21710.10560.11157.6
Investment ratio0.22760.14620.081411.06
Equity ratio0.42860.31140.117214.27
Interest coverage0.22270.05310.169616.57
Note: The table reports the propensity score matching results. Panel A reports the univariate comparison of firm characteristics between the treated and the control groups and the corresponding t-statistics. The treated group consists of utility firms with founder CEOs. Panel B reports the estimates of average treatment effects. The dependent variables are different financial choices (i.e., cash holdings, investment ratio, equity ratio, and interest coverage). The matching variables are ROE, firm size, market-to-book ratio, interest-to-debt ratio, earnings volatility, tangibility, and firm age. Significance at the 1%, 5%, or 10% level is presented as 3, 2, or 1 asterisk, respectively (Source: Authors).
Table 5. Entropy balancing.
Table 5. Entropy balancing.
Panel A. Regression result of different financial choices with entropy balancing.
(1)(2)(3)(4)
VariablesCash HoldingsInvestment RatioEquity RatioInterest Coverage
Founder CEO Dummy0.055 ***0.048 ***0.077 ***0.124 ***
(3.19)(5.62)(6.96)(4.99)
ROE0.054−0.0290.0540.108 ***
(0.91)(−1.34)(1.50)(3.42)
Firm Size−0.031 ***−0.011 ***−0.031 ***−0.043 ***
(−5.58)(−3.28)(−8.25)(−6.65)
Market-to-Book ratio0.0010.003−0.0020.015 ***
(0.25)(1.09)(−0.53)(2.88)
Interest-to-Debt ratio−1.055 ***−0.793 ***−2.004 ***−2.682 ***
(−3.66)(−5.25)(−8.66)(−5.56)
Firm Age−0.002 ***−0.002 ***−0.0000.001
(−4.69)(−6.63)(−0.54)(1.04)
Earnings Variability0.725 **0.093−0.605 ***−0.030
(2.08)(0.59)(−3.53)(−0.14)
Tangibility−0.852 ***−0.106 ***0.133 ***0.249 ***
(−11.92)(−3.51)(4.20)(3.84)
Constant0.964 ***0.416 ***0.647 ***0.374 ***
(11.09)(13.53)(16.63)(4.94)
Observations5110511051105110
R-squared0.3650.1770.2850.163
Year FEYesYesYesYes
Panel B. Proof of entropy balancing convergence.
PrePost
TreatedControlsTreatedControls
VariablesMeanVarianceSkewnessMeanVarianceSkewnessMeanVarianceSkewnessMeanVarianceSkewness
ROE0.0980.065−0.3190.0930.063−1.0870.0980.065−0.3190.0980.065−0.319
Firm Size7.9692.7480.1778.2652.855−0.1777.9692.7480.1777.9692.7480.177
Market-to-Book ratio2.5416.5792.8582.1944.2183.4172.5416.5792.8582.5416.5792.858
Interest-to-Debt ratio0.0520.0010.7010.0650.0011.3130.0520.0010.7010.0520.0010.701
Firm Age25.34207.80.85133.213260.01225.34207.80.85125.34207.80.851
Earnings Volatility0.0300.0033.8570.0200.0015.0860.0300.0033.8570.0300.0033.857
Tangibility0.5710.034−0.5520.6270.032−1.0070.5710.034−0.5520.5710.034−0.552
Note: Panel A of the table reports the entropy balancing results, and the dependent variables are different financial choices (i.e., cash holdings, investment ratio, equity ratio, and interest coverage). Panel B of the table reports the proof of entropy balancing convergence. The reweighted variables are ROE, firm size, market-to-book ratio, interest-to-debt ratio, earnings volatility, tangibility, and firm age. T-statistics based on robust standard errors are reported in parentheses. Significance at the 1%, 5%, or 10% level is presented as 3, 2, or 1 asterisk, respectively (Source: Authors).
Table 6. Endogeneity test using lagged variable. Regression result of the impact of CEO founding status on different financial choices using lagged variable.
Table 6. Endogeneity test using lagged variable. Regression result of the impact of CEO founding status on different financial choices using lagged variable.
(1)(2)(3)(4)
VariablesCash HoldingsInvestment RatioEquity RatioInterest Coverage
Founder CEO Dummy0.046 ***0.036 ***0.096 ***0.142 ***
(2.79)(4.69)(9.15)(6.06)
Lagged ROE0.028−0.0060.048 ***0.072 ***
(1.35)(−0.54)(3.17)(6.53)
Firm Size−0.024 ***−0.011 ***−0.030 ***−0.025 ***
(−11.15)(−8.08)(−18.79)(−10.77)
Market-to-Book ratio0.013 ***0.006 ***−0.0020.010 ***
(5.31)(4.88)(−1.03)(5.76)
Interest-to-Debt ratio−0.156−0.727 ***−0.999 ***−0.497 *
(−0.52)(−6.11)(−6.34)(−1.81)
Firm Age−0.001 ***−0.002 ***−0.001 ***−0.000
(−5.91)(−13.34)(−6.32)(−0.54)
Earnings Variability0.987 ***0.247 ***−0.510 ***0.056
(5.39)(2.90)(−4.60)(0.46)
Tangibility−0.603 ***−0.121 ***0.080 ***−0.022
(−17.36)(−8.46)(5.58)(−1.18)
Constant0.674 ***0.406 ***0.610 ***0.283 ***
(16.06)(23.75)(32.36)(9.93)
Observations4854485448544854
R-squared0.3560.2330.2130.137
Year FEYesYesYesYes
Note: To tackle the endogeneity concerns between financial choices and performance, we use a lagged adjusted ROE. The table shows the regression result when each different financial choice (i.e., cash holdings, investment ratio, equity ratio, and interest coverage) is used as the dependent variable. T-statistics based on robust standard errors are reported in parentheses. Significance at the 1%, 5%, or 10% level is shown with 3, 2, or 1 asterisk, respectively. All variables are defined in Appendix A (Source: Authors).
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Alam, M.A.U.; Alam, M.M.U.; Nazrul, T. Founder CEOs and Utility Firms’ Financial Choices. J. Risk Financial Manag. 2025, 18, 531. https://doi.org/10.3390/jrfm18100531

AMA Style

Alam MAU, Alam MMU, Nazrul T. Founder CEOs and Utility Firms’ Financial Choices. Journal of Risk and Financial Management. 2025; 18(10):531. https://doi.org/10.3390/jrfm18100531

Chicago/Turabian Style

Alam, Md Asif Ul, Md Maruf Ul Alam, and Toufiq Nazrul. 2025. "Founder CEOs and Utility Firms’ Financial Choices" Journal of Risk and Financial Management 18, no. 10: 531. https://doi.org/10.3390/jrfm18100531

APA Style

Alam, M. A. U., Alam, M. M. U., & Nazrul, T. (2025). Founder CEOs and Utility Firms’ Financial Choices. Journal of Risk and Financial Management, 18(10), 531. https://doi.org/10.3390/jrfm18100531

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