What Do Outside CEOs Really Do? A Look Inside the Black Box With Plant-Level Data

Abstract

Using rich plant-level data, we analyze the relative performance of inside and outside CEOs and provide the first empirical evidence on what CEOs actually do to improve performance. Contrary to conventional wisdom, we show that, compared to insiders, outsiders achieve higher growth in productivity in both low- and high-performing firms. Efficiency gains emerge from divesting low-performing, non-core, and low-tech plants. Additionally, outsiders improve the productivity of remaining plants by cutting costs, consolidating product offering, adopting newer technology, and shifting to more capital-intensive production that improves labor productivity. Overall, our results suggest that outsiders are more effective in rectifying pre-turnover inefficiencies.

Keywords: CEO Succession, Productivity, Corporate Restructuring

JEL Classification: G34