Transferable Skills vs. Homecourt Advantage: A Comparison of Real Asset Performance by Externally and Internally Hired CEOs
60 Pages Posted: 11 Nov 2007 Last revised: 2 Aug 2018
Date Written: November 9, 2007
Overall, we find that CEOs appointed from inside the firms deliver greater cumulative and more persistent performance than those hired from outside the firms. We attribute this to insiders having a home court advantage, from years of accumulated firm-specific experience. This advantage is rarely transferable, as their persistent superior performance is rarely repeated in another firm. The size of this advantage could be large, as we find the performance of the insiders to be no worse, often better, than outsiders even when we isolate situations in which firms are distressed, insiders are disadvantaged, and outsiders are empowered. Our evidence fails to support the notion that general skills are increasingly more valuable, and the shortage of CEOs with these skills causes the observed rise in CEO pay.
Keywords: CEO, Performance, Turnover, Firm specific skills, general skills, labor market
JEL Classification: G30, G32, G34
Suggested Citation: Suggested Citation