Born Leaders: The Relative-Age Effect and Managerial Success

Born Leaders: The Relative-Age Effect and Managerial Success

Qianqian Du*
Sauder School of Business
University of British Columbia
2053 Main Mall, Vancouver, BC V6T 1Z2
604.827.0168
qianqian.du@sauder.ubc.ca

Huasheng Gao
Sauder School of Business
University of British Columbia
2053 Main Mall, Vancouver, BC V6T 1Z2
604.657.4458
huasheng.gao@sauder.ubc.ca

Maurice D. Levi
Sauder School of Business
University of British Columbia
2053 Main Mall, Vancouver BC V6T 1Z2
604.822.8260
maurice.levi@sauder.ubc.ca

November, 2008

Abstract: This paper shows that the time of year of a person’s birth is an important factor in the
likelihood they become a CEO, and conditional on becoming a CEO, on the performance of the firms
they manage. Based on a sample of 321 CEOs of S&P 500 companies from 1992 to 2006 we find
that (1) the number of CEOs born in the summer is disproportionately small, and (2) firms with
CEOs born in the summer have higher market valuation than firms headed by non-summer-born
CEOs. Furthermore, an investment strategy that bought firms with CEOs born in the summer and
sold firms with CEOs born in other seasons would have earned an abnormal return of 8.32 percent
per year during the sample period. Our evidence is consistent with the so-called “relative-age effect”
due to school admissions grouping together children with age differences up to one year, with
summer-born children being younger than their non-summer-born classmates. The relative-age effect
has been demonstrated in numerous sporting and other contexts to last to adulthood and to favor
older children within a school grade. Those younger children who nevertheless succeed by
overcoming their disadvantage have to be particularly capable within their cohort. Together, the
advantage enjoyed by older children and the particularly high capability of successful young children
explain the statistically and economically significant findings.

Keywords: Relative-age, CEO birthdate, corporate performance
*We thank Biography Resource Center for providing the database from which we obtained the birthdate data.

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Introduction
There is mounting empirical evidence that summer-born children are at a
disadvantage as a result of being up to a year younger than other classmates in their
school grade. Summer-born children are in this position due to the fact that the cutoff
dates for admission into school generally fall at the end of August or shortly thereafter.
Therefore, those born before the cutoff date, during the summer months, are younger
and less physically and intellectually developed than their classmates. The
disadvantage faced by summer-born children has been shown to exist throughout
school, and even to affect the success at entering university. This well-documented
condition has become known as the “relative-age effect” or the “birth-date effect”.

This paper investigates whether there is such a relative-age or birth-date effect in the
selection and performance of CEOs of S&P 500 companies. Given the high level of
corporate achievement such positions represent, and the relatively fierce competition
faced in reaching such positions, CEOs represent an ideal context for studying the
evidence for such an effect, and to investigate whether it extends well beyond school
into adulthood.

In order to investigate the possible presence of a relative-age effect among highly
successful U.S. CEOs we construct a birthdate dataset for the CEOs of S&P 500
companies between 1992 and 2006. Based on the prevailing cutoffs of school entry in
the United States, we distinguish four birth seasons with the summer season being

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from July to September. We obtain the names of the CEOs from ExecuComp, and their
birth-date and educational background in Biography Resource Center. We were able to
identify birthdates and education backgrounds of 321 CEOs.1 Stock price data were
obtained from CRSP and accounting data from Compustat.

The principal findings are as follows. First, we find that non-summer born individuals
have a significantly higher chance of becoming a CEO of an S&P 500 company. This
occurs relative to both an equal division of births across seasons, and relative to the
actual seasonal pattern of births. Second, conditional on becoming a CEO, those who
were born in the summer add higher value to their company whether this be
considered via Tobin’s Q involving market and book value of assets, or the market to
book value of equity, M/B. We find that having a summer-born CEO increases Tobin’s
Q and M/B at a p-value of less than one-percent. Third, we then consider the return
from a policy of forming a portfolio based on buying companies with summer-born
CEOs and selling short the companies with non-summer-born CEOs. These portfolios
are reset once each year. This is shown to generate an annual abnormal return of 8.32
percent. This indicates that financial markets are yet to realize the effect of CEO birth
season on asset returns.

We also investigate whether the relative-age effect shows up in CEO compensation.
We find that summer-born CEOs receive unconditionally higher compensation, but

1 We address the sample selection issue and do not expect our sample of birthdates to be biased in any
obvious way.

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after controlling for firm characteristics like firm performance, size, risk, and other
unobservable firm characteristics, the season of CEO birth has no impact on
compensation. This is consistent with a lack of recognition of the possible influence
of birthdate on managerial performance.

As September may confound the relative-age effect due to the fact that some schools
have entry cutoff dates early in that month, we perform a robustness check by not
including September in the summer birth season. We find that our results are not
sensitive to this alternative specification.

We provide an explanation of the empirical relevance of season of birth both for the
higher numbers of non-summer born becoming CEOs, and for the better performance
of CEOs born in the summer. The explanation relies only on the advantage that
non-summer born have in being selected for activities that provide them with
experiences which benefit them in the CEO selection process, and on the need for
summer-born to distinguish themselves among their peers. It does not rely on there
being any eventual difference in management skills in adulthood according to the
season of a person’s birth. To support our explanation more formally, we present a
formal model.

The paper is organized as follows. Section I discusses the extensive literature on the
relative-age or birth-date effect. Section II considers the relevant season of birth.

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Section III explains how birth-date data for S&P 500 CEOs were collected and
organized. In Section IV we consider the prevalence and performance of summer-born
CEOs. Section V turns to the explanation for what we have found. Section VI of the
paper concludes.
I. The Relative-Age or Birth-Date Effect
It is probably fair to say that of the literally hundreds of research papers documenting
the relative-age or birth-date effect, the vast majority focus on sport.2 Sport is an
activity in which children are grouped by age, usually in one-year categories, in order to
control for age-related differences in physical and intellectual development. The
relevance of relative-age for long-run success in sports has been documented in just
about every sport played, from soccer, to basketball, to ice hockey, to baseball to tennis.
Taking sports in no particular order, we can begin with soccer where a study by
Glamser and Vincent (2004) showed that a disproportionate number of elite youth
soccer players in the United States were born early in the school year, making them
generally older than their teammates. The effects of relative-age continue into
professional soccer, as has been shown by Ashworth and Heyndels (2007) who
examined wage levels and showed that players born late after the cutoff date – making
them older than teammates - earned more than other professional soccer players.

2 However, as we shall see, the birth-date effect has been documented in other endeavors, including
academic success. See Bedard and Dhuey (2006).

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The importance of the relative-age effect in ice hockey has been studied by Baker and
Logan (2007) who considered the selection order in the annual National Hockey
League (NHL) draft. As in this paper, athletes were divided into four quartiles by the
season of their birth. It was determined that relative age still plays a role at the time of
the NHL draft. This study followed an earlier investigation of ice-hockey success by
Barnsley, Thompson, and Barnsley (1985). In this study the birth months of Ontario
Hockey League and Western Hockey League players were organized by month. The
authors showed an almost straight line decline in numbers reaching these leagues,
which are just below the NHL in prestige, from team members born in January – 16
percent of the players – to those born in December, about 4 percent. In
English-speaking Canada, the school year cutoff is December 31, so children born in
January are the oldest and those born in December are the youngest.3
With height being a highly favored characteristic in basketball it is little surprise that a
relative-age effect has been observed. Esteva, Dobnic, and Puigdellivol (2008)
examined the birthdates of Spanish youth and professional players as well as National
Basketball Association (NBA) players in the 2004/05 season, and the best 50 players in
NBA history. By sorting birthdates into four categories, or seasons, and applying a
chi-quadrate test, a relative-age effect was identified which extended right up to the
all-time very top NBA professionals. A more extensive study of the relative-age effect

3 Interestingly, while there is an almost exact straight line decline in the proportion of players in the
leagues from January to November, there is a slight increase from November to December. This could
well result from the practice of some Canadian parents who hold back December-born children until
the following year.

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in basketball involving over 150,000 male players and 100,000 female players in
France by Delorme and Raspaud (2008) confirmed the importance of the calendar
quarter of the year of birth.
The developmental benefit enjoyed by those born in the first few months of the
selection year has been documented in baseball by Thompson, Barnsley, and Stebelsky
(1991). The relative-age effect is confirmed in a population of 837 major league
baseball players, again showing that season of birth can have a lifelong effect. Another
sport where the relative-age effect has been shown to survive into adulthood is tennis.
This involved investigation of birthdates of nationally ranked junior tennis players in
the United States by Giacomini (1999). Even in a non-team sport such as tennis, those
born earlier in a year are older and enjoy advantages.
The importance of the relative-age effect has been shown to extend well beyond sport,
and to be found in academic performance throughout school and even in the likelihood
of attending university. For example, Bedard and Dhuey (2006) have documented the
effect across OECD countries: older children perform several percentiles better than
younger class members. Other country-specific studies confirm these effects, including
the impact on income.4 Most importantly for the evidence presented later in this paper,
it has also been shown that relative-age has a significant effect on high school
leadership activities. To quote the abstract from one research paper in this area,

4 For example, for the situation in Japan see Kawaguchi (2006). For Germany see Jurges and
Schneider (2008). For Britain, see Hutchison and Sharp (1999). The issue of disadvantaged
summer-born children recently gained so much attention in Britain that the Education Secretary
launched a review in January 2008 to see what might be done to help them.

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“…school entry cutoffs induce systematic within grade variation in student maturity,
which in turn generates differences in leadership activity. We find that the relatively
oldest students are 4-11 percent more likely to be high school leaders,” (Dhuey and
Lipscomb (2008)).
II. The Relevant Seasons of Birth
The predominant practice in the research cited above is to divide the year into the four
calendar quarters. The youngest in class are taken as those born in the summer, July
through September, the third quarter of the year. The oldest are taken as those born in
the fourth quarter. This is based on the prevailing cutoffs for entry for either
kindergarten or first grade. In this regard it is worthy to note that thirty-seven of the U.S.
states plus Puerto Rico have kindergarten entry cutoff dates between August 31 and
October 16.5 This would make the children born in July and August among the
youngest in class, with September born in many cases also being younger. Those born
after mid-October through the end of the year would be among the oldest. However, the
fourth quarter could contain some of the younger students. Nevertheless we would
expect the number of younger children to be relatively higher in the third quarter than
the fourth quarter. The ranking in terms of average age is not in doubt for the first and
second quarters, with these containing the second and third youngest children. We
follow the universal convention in the relative-age research of classifying the seasons
as each of the four calendar quarters. However, as a robustness check we also present

5 Education Commission of the States, State Notes Kindergarten. The relevant, detailed data can
be found at http://www.ecs.org/clearinghouse/50/00/5000.htm.

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results based on excluding the month of possible age ambiguity, September, and yet
find the relative-age effect still to be present.
III. Data Employed: CEO Birthdates and Firm Characteristics
In order to investigate the possible presence of a relative-age effect among highly
successful U.S. CEOs we construct a birthdate dataset for the CEOs of S&P 500
companies between 1992 and 2006. Based on ExecuComp, we first identify the names
of the CEOs, and then search for their birth-date and educational background in
Biography Resource Center. Biography Resource Center is a database providing
comprehensive biography information of notable individuals in business, art,
government, and other endeavors. We were able to identify birthdates and education
backgrounds of 321 CEOs. Although the source we employ does not provide the birth
information of all CEOs we do not expect our sample of birthdates to be biased in any
obvious way. Bias would require the likelihood of birthdate information being
available to differ according to the quarter of the year of birth. We can think of no
reason why this would happen.

Stock price data were obtained from CRSP and accounting data from Compustat. The
sample we use containing the 321 CEOs for which we have birthdates provides 2168
firm-year observations.

As for the financial data, following Gompers, Ishii and Metrick (2003) and others we

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measure Tobin’s Q as the market value of assets divided by book value of assets. We
also measure the market-to-book (M/B) ratio as the market value of equity over book
value of equity. The market value of equity (MV Equity) is computed as the yearly
closing share price multiplied by the number of shares outstanding. We define
Volatility as the stock return standard deviation using monthly returns of the preceding
three years. Return on assets (ROA) is measured as the ratio of operational income
before depreciation over total assets. We compute Leverage as the ratio of long-term
debt over total assets. Capital Expenditure is the firm’s yearly capital expenditure
normalized by total assets. MBA is a dummy variable, taking value of one if the CEO
holds an MBA degree and zero otherwise. Summer is a dummy variable which equals
one if the CEO is born in the summer, consisting of July, August and September. All
the monetary variables in the sample are measured in 2006-constant dollars. To ensure
some outliers in the data are not driving our results, we winsorize all the continuous
variables at the 1st and 99th percentiles.
[Insert Table 1 Here]
Panel A of Table 1 reports the characteristics of the firms in our sample. The median
firm has a Tobin’s Q of 1.49 and its M/B is 2.56. During the sample period the firms
are performing well with a median Stock Return of 17.3% and ROA of 13.2%.
Moreover, the median firm is moderately levered with a Leverage of 16.1%; its
market value of equity is $12.71 billion; it makes Capital Expenditure of 4.3% and
experiences Volatility of 0.083. FirmSize is defined as the natural logarithm of market
value of equity. The mean and median values for CEOage are respectively 56.7 and

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