Board Connections and CEO Successions
58 Pages Posted: 10 Mar 2020 Last revised: 26 Feb 2021
Date Written: Feb 25, 2021
This paper studies the effects of connections between CEO candidates and board members on CEO succession decisions. CEO candidates’ prior connections with the hiring board increase their probability of being hired. These connections also affect post-succession firm performance. Connections reduce CEO labor market frictions and improve succession efficiency, especially in outside successions. They, however, distort director incentives and lead to inefficient succession decisions when internal governance is weak. Further, board connectedness to candidates can shape firms’ decisions to hire from the outside and reduce uncertainties. Overall, board connections provide information benefits but also raise agency concerns.
Keywords: CEO succession, succession planning, CEO replacements, social networks, board connections, corporate governance, agency problem, managerial labor markets, information frictions
JEL Classification: G34, J20
Suggested Citation: Suggested Citation