The Market for CEOs: Evidence from Private Equity

Abstract

Most research on the CEO labor market has studied public company CEOs while largely ignoring the market for CEOs in private equity funded companies. We fill this gap by studying the market for CEOs among larger U.S. companies (enterprise value greater than $1 billion) purchased by private equity firms between 2010 and 2016. We find that 71% of those companies hired new CEOs under private equity ownership. Almost 75% of the new CEOs are external hires with 67% being complete outsiders. The most recent experience of 69% of the outside CEOs was at a public company with 32% at an S&P 500 company. Almost 50% of the external hires have some previous experience at an S&P 500 company. These results are strikingly different from studies that look at public companies, in particular, Cziraki and Jenter (2021) who find that 72% of new CEOs in S&P 500 companies are internal promotions and 80% are internal promotions, former executives or board members. The median buyout in our sample earned 2.5 times on its equity investment. Companies with external CEOs appointed at the time of the buyout did particularly well. Using the performance of the buyouts and survey evidence on buyout equity incentives, we estimate the compensation buyout CEOs can expect and find that the magnitude is higher than that for CEOs of similarly sized public companies and comparable to that of S&P 500 CEOs. Overall, our results suggest that the broader market for CEOs is quite active and that, at least for private equity funded portfolio companies, firm-specific human capital is relatively unimportant. In addition, the compensation results indicate that public company executives have viable outside options. Finally, the results for and inferences from publicly-owned companies do not necessarily generalize to all companies. We conclude by discussing possible reasons that the public company and private-equity portfolio company CEO results are so different.

Keywords: CEO turnover, CEO compensation, private equity, corporate governance

JEL Classification: G20, G30, G32, G34, J23, J31, M12, M51