Recruiting the CEO from the Board: Determinants and Consequences
54 Pages Posted: 24 Jun 2015 Last revised: 8 Aug 2017
Date Written: June 6, 2017
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.
Keywords: CEO Succession, Independent Directors, Firm Performance
JEL Classification: G34
Suggested Citation: Suggested Citation