Do Insiders Hire CEOs with High Managerial Talent?*

Jason Kotter and Yelena Larkin

Review of Finance, 2024, vol. 28, issue 1, 271-310

Abstract: We examine the effect of the composition of the board of directors on the firm’s chief executive officer (CEO) hiring decision. Using a novel measure of managerial talent, characterized by an individual’s ascent in the corporate hierarchy, we show that firms with non-CEO inside directors tend to hire CEOs with greater managerial skills. This effect obtains for both internal and external CEO hires; moreover, the effect is pronounced when inside directors have stronger reputational incentives and limited access to soft information about the candidate. Our findings demonstrate that boards with inside directors more effectively screen for managerial talent, thereby improving the CEO hiring process.

Keywords: Executive directors; Inside directors; CEOs; Talent; Human capital; Board of directors (search for similar items in EconPapers)
JEL-codes: G30 G34 J44 (search for similar items in EconPapers)
Date: 2024
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