Outside and Inside Hired CEOs: A Performance Surprise

59 Pages Posted: 8 Nov 2009

See all articles by James S. Ang

James S. Ang

Florida State University; Florida State University - College of Law

Gregory Leo Nagel

Middle Tennessee State University

Date Written: November 6, 2009


We investigate the association between financial performance and CEO hiring source: internal promotion or external firm. This analysis includes all U.S. CEOs in established public firms from 1986 to 2005. The results show that in large firms, internal hires provide significantly higher median performance, equal chance of the highest performance, and lesser chance of low performance. Over our time period of study, external hires’ performance, relative to internal hires, has decreased significantly. Further, in 10 circumstances where it is commonly thought that external hires would excel, it is the inside hires who either excel or deliver performance comparable to external hires. In the aggregate, internally promoted CEOs are associated with at least 25.4% greater total financial performance than external hires. Overall, the results 1) reveal a deviation from boards’ expectations, and 2) are consistent with Merton’s (1987) observation that correction of an anomaly like this can only occur after a period of time sufficient for its statistical documentation.

Keywords: CEO turnover, firm performance, labor market demand, executive retention

JEL Classification: G30; G32; G34

Suggested Citation

Ang, James S. and Nagel, Gregory Leo, Outside and Inside Hired CEOs: A Performance Surprise (November 6, 2009). Available at SSRN: https://ssrn.com/abstract=1501024 or http://dx.doi.org/10.2139/ssrn.1501024

James S. Ang

Florida State University ( email )

College of Business
Tallahassee, FL 32306-1042
United States
904-644-8208 (Phone)

Florida State University - College of Law ( email )

425 W. Jefferson Street
Tallahassee, FL 32306
United States

Gregory Leo Nagel (Contact Author)

Middle Tennessee State University ( email )

P.O. Box 50
Murfreesboro, TN 37132
United States

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