A:

C-suite executives are essential for creating and enacting overall firm strategy and are therefore an important aspect of fundamental analysis. Large publicly traded companies operate in complex and highly competitive markets with little room for error. Chief officers have final approval of all major decisions affecting total firm operations, so the C-suite is instrumental in firms sustaining and growing amid stiff competition. Poor leadership can lead to erosion of equity value quickly.

A 2012 study conducted by Daniel Wolfenzon of Columbia University, Francisco Perez-Gonzalez of Stanford University and Morten Bennedsen showed that companies whose CEOs were temporarily hospitalized underperformed on profitability, revenue and investment outcomes but returned to normal when the CEOs returned. This same study indicates that the absence of other executives does not have the same impact. The market price for company shares is also directly affected by the C-suite. When Alibaba (NYSE: BABA) named a popular new CEO in May 2015, shares surged 7.5%. When Petrobras (NYSE: PBR) announced a new CEO of whom investors disapproved in February 2015, share prices dropped as much as 9%.

The C-suite is also used to assess governance. Executive compensation, distribution of rights and other general matters of oversight governing the operations of a corporation are important for ensuring executive incentives are aligned with shareholder interests. If chief officers lack accountability and proper oversight, the company can run afoul of ethical and regulatory guidelines. Notable examples of poor governance are Enron and MCI of the early 2000s. Investors lost substantially all of the value of those companies after fallout from fraudulent activities and declarations of bankruptcy.

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