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Outside Directors and CEO Selection

Published online by Cambridge University Press:  06 April 2009

Kenneth A. Borokhovich ,
Robert Parrino  and
Teresa Trapani
Kenneth A. Borokhovich
Affiliation:
School of Business Administration, Wayne State University, Detroit, MI 48202
Robert Parrino
Affiliation:
Graduate School of Business, The University of Texas at Austin, Austin, TX 78712
Teresa Trapani
Affiliation:
Norwegian School of Management, Elias Smiths vei 15, P.O. Box 580, Sandvika, Norway.
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Abstract

This paper documents a strong positive relation between the percentage of outside directors and the frequency of outside CEO succession. The likelihood that an executive from outside the firm is appointed CEO increases monotonically with the percentage of outside directors. This monotonic relation is observed for both voluntary and forced departures. Evidence from stock returns around succession announcements indicates that, on average, shareholders benefit from outside appointments, but are harmed when an insider replaces a fired CEO.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 31 , Issue 3 , September 1996 , pp. 337 - 355
Copyright
Copyright © School of Business Administration, University of Washington 1996

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