Internal Managerial Promotions: Insider Incentives and CEO Succession

53 Pages Posted: 10 Mar 2008 Last revised: 4 Sep 2012

See all articles by Shawn Mobbs

Shawn Mobbs

University of Alabama - Culverhouse College of Business Administration

Charu G. Raheja

Wake Forest University

Date Written: September 3, 2012

Abstract

We identify and compare firms that promote a single executive (successor-incentive) and companies that conduct tournaments (tournament-incentive) among inside managers to succeed the CEO. Successor-incentive firms give more pay-for-performance compensation to the designated successor, are more likely in firms or industries where firm-specific human capital is more important to the CEO position and where the supply of potential outside CEO replacements is limited. In addition, these firms are associated with lower CEO turnover sensitivity to firm performance. Restricting firms that are suited for a successor-incentive promotion to a tournament-incentive promotion is associated with lower firm valuation.

Keywords: Succession, CEO turnover, organization structure, tournament, compensation, firm performance

JEL Classification: G30, G32, G34

Suggested Citation

Mobbs, Shawn and Raheja, Charu G., Internal Managerial Promotions: Insider Incentives and CEO Succession (September 3, 2012). Journal of Corporate Finance, Forthcoming, EFA 2008 Athens Meetings Paper, ECGI - Finance Working Paper No. 226/2008, Available at SSRN: https://ssrn.com/abstract=1102688 or http://dx.doi.org/10.2139/ssrn.1102688

Shawn Mobbs

University of Alabama - Culverhouse College of Business Administration ( email )

101 Paul W. Bryant Dr.
Box 870382
Tuscaloosa, AL 35487
United States

Charu G. Raheja (Contact Author)

Wake Forest University ( email )

P.O. Box 7659
Winston-Salem, NC 27109-7659
United States

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