New Evidence on Managerial Labor Markets: An Analysis of CEO Retreads

Abstract

We examine career outcomes of CEOs subsequent to turnover. CEOs often resurface after turnover, but they secure positions that are inferior to their prior posts. Success in the retread market is unrelated to prior employer performance and board composition. CEOs who were particularly attached to their prior employer tend to have the poorest subsequent job prospects. These results suggest a generally efficient CEO turnover process in which firms dismiss CEOs of low ability. As CEOs acquire specific human capital over time, their outside options and bargaining power appear to diminish, offering a potential explanation for the specialist CEO compensation discount.

Keywords: CEO turnover, external labor markets, CEO incentives, managerial ability, retreads

JEL Classification: G30, G31, G32