Do Insiders Hire More Talented CEOs?

58 Pages Posted: 15 Dec 2015 Last revised: 26 Oct 2021

See all articles by Jason D. Kotter

Jason D. Kotter

Brigham Young University - Department of Finance

Yelena Larkin

York University - Schulich School of Business

Date Written: October 2021

Abstract

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

Kotter, Jason D. and Larkin, Yelena, Do Insiders Hire More Talented CEOs? (October 2021). Available at SSRN: https://ssrn.com/abstract=2703671 or http://dx.doi.org/10.2139/ssrn.2703671

Jason D. Kotter (Contact Author)

Brigham Young University - Department of Finance ( email )

United States

Yelena Larkin

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

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