Research note: CEO locus of control and small firm performance

Boone ct al. (1996) reported that Chief Executive Officer (CEO) locus of co ntrol Department uf was significantly associated with profitability in a cr oss-sectional study of 39 small finals. As the authors could not rule out t he possibility that firm performance causes Sciences, an internal locus of control rather than the other way around, a follow-up study was performed t o provide us with a possible clarification of the direction of causation. W e traced the life history of each of these 39 firms and analyzed the relati onship between locus of control and long-run organizational survival. We fo und that 21 percent of the 39 firms studied in Boone ct ai. (1996) went ban krupt within 6 years. Among the CEOs classified as internals, only 1 compan y failed (1 out of 14), whereas among the external CEOs 45 percent did not survive (5 out of 11). We also found that the differences between internal and external CEOs were only observable for firms that were relatively unpro fitable in 1990-1991, indicating that short-term performance shields the co mpanies from subsequent bankruptcy. We conclude that our findings suggest t hat CEO locus of control is an important predictor of small firm performanc e.