Portfolio Return Impact from External Executive Hiring

17 Pages Posted: 4 Feb 2019 Last revised: 26 May 2019

See all articles by Carrie Green

Carrie Green

Tennessee Consolidated Retirement System

Gregory Leo Nagel

Middle Tennessee State University

Philip Seagraves

Middle Tennessee State University

Date Written: May 23, 2019

Abstract

We find that optimal executive hiring decisions at the individual firm level can lead to reduced wealth for investors that hold a diversified portfolio of investments. We use a proven economic model to show costs are imposed on other firms in a portfolio when one firm hires externally. The model shows that the total unrecognized cost for a representative portfolio is about 0.5% per year of market value over the evaluation period. Empirical tests on this economic model, forced turnovers, and highly credentialed CEOs, along with a broad review of the literature, show no evidence that any of the imposed costs are materially mitigated by the value top executive external hires add at the firms they join. We provide recommendations for institutions seeking to reduce these previously unrecognized costs; our primary focus is on encouraging effective succession planning.

Keywords: Portfolio, Institution, Investor, External Hire, Executive

Suggested Citation

Green, Carrie and Nagel, Gregory Leo and Seagraves, Philip, Portfolio Return Impact from External Executive Hiring (May 23, 2019). Available at SSRN: https://ssrn.com/abstract=3323446 or http://dx.doi.org/10.2139/ssrn.3323446

Carrie Green

Tennessee Consolidated Retirement System ( email )

United States

Gregory Leo Nagel (Contact Author)

Middle Tennessee State University ( email )

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

Philip Seagraves

Middle Tennessee State University ( email )

Murfreesboro, TN 37132
United States

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