Hostname: page-component-586b7cd67f-t8hqh Total loading time: 0 Render date: 2024-11-24T21:48:26.504Z Has data issue: false hasContentIssue false
  • English
  • Français

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.
Get access Rights & Permissions [Opens in a new window]

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

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Bonnier, K.-A., and Bruner, R. F.. “An Analysis of Stock Price Reaction to Management Change in Distressed Firms.” Journal of Accounting and Economics, 11 (02 1989), 95–106.CrossRefGoogle Scholar
Brickley, J. A.; Coles, J. L.; and Terry, R. L.. “Outside Directors and the Adoption of Poison Pills.” Journal of Financial Economics, 35 (06 1994), 371–390.CrossRefGoogle Scholar
Byrd, J. W., and Hickman, K. A.. “Do Outside Directors Monitor Managers? Evidence from Tender Offer Bids.” Journal of Financial Economics, 32 (10 1992), 195–221.CrossRefGoogle Scholar
Cannella, A. A. Jr.; Lubatkin, M.; and Kapouch, M.. “Antecedents of Executive Selection: Additional Empirical Evidence.” Academy of Management Best Papers Proceedings (1991), 11–14.CrossRefGoogle Scholar
Dalton, D. R., and Kesner, I. F.. “Inside/Outside Succession and Organizational Size: The Pragmatics of Executive Replacement.” Academy of Management Journal, 26 (12 1983), 736–742.CrossRefGoogle Scholar
Dalton, D. R., and Kesner, I. F.. “The Effect of Board Composition on CEO Succession and Organizational Performance.” Quarterly Journal of Business and Economics, 24 (Spring 1985), 3–20.Google Scholar
Denis, D. J., and Denis, D. K.. “Performance Changes following Top Management Dismissals.” Journal of Finance, 50 (09 1995), 1029–1057.CrossRefGoogle Scholar
Dodd, P., and Warner, J. B.. “On Corporate Governance: A Study of Proxy Contests.” Journal of Financial Economics, 11 (04 1983), 401–438.CrossRefGoogle Scholar
Fama, E. F., and Jensen, M. C.. “Separation of Ownership and Control.” Journal of Law and Economics, 26 (06 1983), 301–325.CrossRefGoogle Scholar
Furtado, E. P. H., and Rozeff, M. S.. “The Wealth Effects of Company Initiated Management Changes.” Journal of Financial Economics, 18 (03 1987), 147–160.CrossRefGoogle Scholar
Gilson, S. C. “Bankruptcy, Boards, Banks, and Blockholders: Evidence on Changes in Corporate Ownership and Control when Firms Default.” Journal of Financial Economics, 27 (10 1990), 355–387.CrossRefGoogle Scholar
Heckman, J. J. “Sample Selection Bias as a Specification Error.” Econometrica, 47 (01 1979), 153–161.CrossRefGoogle Scholar
Helmich, D. L. “Organizational Growth and Succession Patterns.” Academy of Management Journal, 7 (12 1974), 771–775.CrossRefGoogle Scholar
Helmich, D. L., and Brown, W. B.. “Successor Type and Organizational Change in the Corporate Enterprise.” Administrative Science Quarterly, 17 (09 1972), 371–381.CrossRefGoogle Scholar
Hermalin, B. E., and Weisbach, M. S.. “The Determinants of Board Composition.” RAND Journal of Economics, 19 (Winter 1988), 589–606.CrossRefGoogle Scholar
Kang, J.-K., and Shivdasani, A.. “Firm Performance, Corporate Governance, and Top Executive Turnover in Japan.” Journal of Financial Economics, 38 (05 1995), 29–58.CrossRefGoogle Scholar
Kaplan, S. N., and Reishus, D.. “Outside Directorships and Corporate Performance.” Journal of Financial Economics, 27 (10 1990), 389–410.CrossRefGoogle Scholar
Lee, C. I.; Rosenstein, S.; Rangan, N.; and Davidson, W. N. III. “Board Composition and Shareholder Wealth: The Case of Management Buyouts.” Financial Management, 21 (Spring 1992), 58–72.CrossRefGoogle Scholar
Lorsch, J. W., and MacIver, E.. Pawns or Potentates: The Reality of America's Corporate Boards. Boston, MA; Harvard Business School Press (1989).Google Scholar
Mace, M. L.Directors: Myth and Reality. Boston, MA; Harvard Business School Press (1986).Google Scholar
Mayers, D.; Shivdasani, A.; and Smith, C. W. Jr., “Board Composition and Corporate Control: Evidence from the Insurance Industry.” Unpubl. Manuscript, Ohio State Univ. (1994).Google Scholar
Park, S., and Rozeff, M. S.. “The Role of Outside Shareholders, Outside Boards, and Management Entrenchment in CEO Selection.” Unpubl. Manuscript, State Univ. of New York at Buffalo (1994).Google Scholar
Parrino, R. “CEO Turnover and Outside Succession: A Cross-Sectional Analysis.” Unpubl. Dissertation, Univ. of Rochester (1992).Google Scholar
Parrino, R. “CEO Turnover and Outside Succession: A Cross-Sectional Analysis.” Unpubl. Manuscript, Univ. of Texas at Austin (1996).Google Scholar
Reinganum, M. R. “The Effect of Executive Succession on Stockholder Wealth.” Administrative Science Quarterly, 30 (03 1985), 46–60.CrossRefGoogle Scholar
Rosenstein, S., and Wyatt, J. G.. “Outside Directors, Board Independence, and Shareholder Wealth.” Journal of Financial Economics, 26 (08 1990), 175–191.CrossRefGoogle Scholar
Van De Ven, W. P. M. M., and Van Praag, B. M. S.. “The Demand for Deductibles in Private Health Insurance: A Probit Model with Sample Selection.” Journal of Econometrics, 17 (11 1981), 229–252.CrossRefGoogle Scholar
Vancil, R. F.Passing the Baton: Managing the Process of CEO Succession. Boston, MA: Harvard Business School Press (1987).Google Scholar
Warner, J. B.; Watts, R. L.; and Wruck, K. H.. “Stock Prices and Top Management Changes.” Journal of Financial Economics, 20 (01/03 1988), 461–492.CrossRefGoogle Scholar
Weisbach, M. S. “Outside Directors and CEO Turnover.” Journal of Financial Economics, 20 (01/03 1988), 431–460.CrossRefGoogle Scholar