Are Outsiders Handicapped in CEO Successions?

39 Pages Posted: 21 Apr 2004

See all articles by Anup Agrawal

Anup Agrawal

University of Alabama - Culverhouse College of Commerce & Business Administration

Charles R. Knoeber

North Carolina State University - Poole College of Management

Theofanis Tsoulouhas

University of California-Merced, School of Social Sciences, Humanities & Arts, The Ernest & Julio Gallo Management Program

Abstract

We argue that outsiders are handicapped in CEO successions to strengthen the incentive that the contest to become CEO provides inside candidates. Handicapping implies that a firm is more likely to pick an insider for the CEO position where insiders are more comparable to each other and less comparable to outsiders, and where there are more inside candidates. Using a novel measure of the comparability of insiders based on firm organizational structure, we analyze over 1,000 CEO successions in large U.S. firms over the 1974-1995 period and find a variety of evidence consistent with these implications of handicapping.

Keywords: CEO succession, Corporate governance, Promotion incentives, Executive compensation, Tournament theory

JEL Classification: G34

Suggested Citation

Agrawal, Anup and Knoeber, Charles R. and Tsoulouhas, Theofanis, Are Outsiders Handicapped in CEO Successions?. Available at SSRN: https://ssrn.com/abstract=533965

Anup Agrawal (Contact Author)

University of Alabama - Culverhouse College of Commerce & Business Administration ( email )

Culverhouse College of Business
EFLS, Box 870224
Tuscaloosa, AL 35487-0224
United States
205-348-8970 (Phone)
205-348-0590 (Fax)

HOME PAGE: http://aagrawal.people.ua.edu/

Charles R. Knoeber

North Carolina State University - Poole College of Management ( email )

Hillsborough Street
Raleigh, NC 27695-8614
United States
919-513-2874 (Phone)
919-515-7873 (Fax)

Theofanis Tsoulouhas

University of California-Merced, School of Social Sciences, Humanities & Arts, The Ernest & Julio Gallo Management Program ( email )

Merced, CA 95343
United States
209-228-4640 (Phone)

HOME PAGE: http://tsoulouhas.info

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