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Industrial Origin of CEOs in Outside Succession: Board Preference and Stockholder Reaction

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  • Wallace Davidson
  • Carol Nemec
  • Dan Worrell
  • Jun Lin

Abstract

Although scholars have studied outside executive succession for decades, there is still no clear definition of the term “outsider”. We focus on a new dimension of outsiderness, the industrial background of executives hired from outside the firm into a CEO position. This paper examines the antecedents of boards' decisions on the industry origin of outside successors as well as the short-term stock market response. We find that firms with more independent boards and with blockholders owning large amounts of stock are more likely to hire industry unrelated successors. However, the board's decision does not strictly follow the rhetoric of stockholder's interests. The stock market reacts more positively to outside CEO succession announcements when the CEO comes from an industry related firm. These findings support our theoretical arguments that the boards of directors may use a logic or rule of appropriateness in deciding the industrial origin of outside successors. Copyright Kluwer Academic Publishers 2002

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  • Wallace Davidson & Carol Nemec & Dan Worrell & Jun Lin, 2002. "Industrial Origin of CEOs in Outside Succession: Board Preference and Stockholder Reaction," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 6(4), pages 295-321, December.
    • Handle: RePEc:kap:jmgtgv:v:6:y:2002:i:4:p:295-321
    DOI: 10.1023/A:1021242931026
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Jalal, Abu M. & Prezas, Alexandros P., 2012. "Outsider CEO succession and firm performance," Journal of Economics and Business, Elsevier, vol. 64(6), pages 399-426.
    2. Rachel M. Hayes & Paul Oyer & Scott Schaefer, 2006. "Coworker Complementarity and the Stability of Top-Management Teams," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 22(1), pages 184-212, April.
    3. Wallace Davidson & Yixi Ning & David Rakowski & Eahab Elsaid, 2008. "The antecedents of simultaneous appointments to CEO and Chair," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 12(4), pages 381-401, November.
    4. Tariq Malik & Sajal Kabiraj, 2011. "Effects of Managerial Strategic Resources on the Outsider CEO Succession in Biopharmaceutical Industry," Vision, , vol. 15(2), pages 101-113, June.
    5. Eszter Bogdány & à gnes Balogh & Tibor Csizmadia, 2014. "Leadership succession and the origin of successor in Hungarian SMEs," Management & Marketing, Economic Publishing House, vol. 9(3), Autumn.
    6. Hadem, Michael, 2010. "Bedingungen und Konsequenzen des Wechsels von Finanzvorständen - Eine Analyse in großen börsennotierten Unternehmen," EconStor Theses, ZBW - Leibniz Information Centre for Economics, number 43681, September.
    7. Vincent Intintoli & Andrew Zhang & Wallace Davidson, 2014. "The impact of CEO turnover on firm performance around interim successions," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 18(2), pages 541-587, May.
    8. Eahab Elsaid & Wallace Davidson & Xiaoxin Wang, 2011. "CEO successor compensation: outside versus inside successions," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 15(2), pages 187-205, May.
    9. Elsaid, Eahab & Davidson III, Wallace N., 2009. "What happens to CEO compensation following turnover and succession?," The Quarterly Review of Economics and Finance, Elsevier, vol. 49(2), pages 424-447, May.

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