Recruiting the CEO from the Board: Determinants and Consequences

Udi Hoitash and Anahit Mkrtchyan

Journal of Financial and Quantitative Analysis, 2018, vol. 53, issue 3, 1261-1295

Abstract: We investigate an increasingly prevalent CEO succession strategy: recruiting CEOs from the board of directors (director–CEOs). Director–CEOs might be hired in a planned succession because they combine outsiders’ new perspectives with insiders’ firm-specific knowledge. Alternatively, directors may be recruited when the board is unprepared for a leadership change. We find that unplanned successions, in which director–CEOs are appointed as a “quick-fix” solution, result in a negative market reaction, deterioration in performance, and ill-fitting candidates with shorter tenures. Conversely, firms recruiting director–CEOs in planned successions perform similarly to other firms. We find no evidence that poor firm quality drives these results.

Date: 2018
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