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Once an outsider, always an outsider? CEO origin, strategic change, and firm performance

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  • Yan Zhang
  • Nandini Rajagopalan

Abstract

In this study, we examine how the relationship between the level of strategic change in the pattern of resource allocation and firm performance differs between firms led by outside CEOs and those led by inside CEOs. Based on longitudinal data on the tenure histories of 193 CEOs who left office between 1993 and 1998, we find that the level of strategic change has an inverted U‐shaped relationship with firm performance. As the level of change increases from slight to moderate, performance increases; as the level of change increases from moderate to great, performance declines. Further, we find that this inverted U‐shaped relationship differs between firms led by outside CEOs and those led by inside CEOs. That is, both the positive effect of strategic change on firm performance when the level of change is relatively low and the negative effect of strategic change on firm performance when the level of change is relatively high are more pronounced for outside CEOs than for inside CEOs. Supplementary analyses also suggest that this difference between outside and inside CEOs exists in later years but not in the early years of CEO tenure. Copyright © 2009 John Wiley & Sons, Ltd.

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  • Yan Zhang & Nandini Rajagopalan, 2010. "Once an outsider, always an outsider? CEO origin, strategic change, and firm performance," Strategic Management Journal, Wiley Blackwell, vol. 31(3), pages 334-346, March.
    • Handle: RePEc:bla:stratm:v:31:y:2010:i:3:p:334-346
    DOI: 10.1002/smj.812
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