Do Insiders Hire More Talented CEOs?
58 Pages Posted: 15 Dec 2015 Last revised: 26 Oct 2021
Date Written: October 2021
We examine the effect of the composition of the board of directors on the firm’s CEO hiring decision. Using a novel measure of talent, characterized by an individual’s ascent in the corporate hierarchy, we show that firms with non-CEO inside directors tend to hire CEOs with greater managerial skills. This effect obtains for both internal and external CEO hires; moreover, the effect is pronounced when inside directors have stronger reputational incentives and limited access to soft information about the candidate. Our findings demonstrate that boards with inside directors more effectively screen for managerial ability, thereby improving the CEO hiring process.
Keywords: executive directors, inside directors, CEOs, talent, human capital, board of directors
JEL Classification: G30, G34
Suggested Citation: Suggested Citation