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Recruiting the CEO from the Board: Determinants and Consequences

Published online by Cambridge University Press:  30 April 2018

Udi Hoitash  and
Anahit Mkrtchyan
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Abstract

We investigate an increasingly prevalent CEO succession strategy: recruiting CEOs from the board of directors (director–CEOs). Director–CEOs might be hired in a planned succession because they combine outsiders’ new perspectives with insiders’ firm-specific knowledge. Alternatively, directors may be recruited when the board is unprepared for a leadership change. We find that unplanned successions, in which director–CEOs are appointed as a “quick-fix” solution, result in a negative market reaction, deterioration in performance, and ill-fitting candidates with shorter tenures. Conversely, firms recruiting director–CEOs in planned successions perform similarly to other firms. We find no evidence that poor firm quality drives these results.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 53 , Issue 3 , June 2018 , pp. 1261 - 1295
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2018 

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Footnotes

1

We thank an anonymous referee, Rajesh K. Aggarwal, Nicole Boyson, Joe Carcello, Olubunmi Faleye, Laura Field, Jarrad Harford (the editor), Rani Hoitash, William Johnson, Jayant Kale, Karthik Krishnan, Nadya Malenko, Tery Neal, Tracie Woidtke, participants of workshops at KU Leuven University, Laval University, Northeastern University, the University of Tennessee, and conference participants at the 2015 Boston Area Finance Symposium for many helpful comments. We thank Priscilla Chai and Vera Lee for research assistance.

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