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Are Outsiders Handicapped in CEO Successions?

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Author Info
Anup Agrawal () (Cluverhouse College of Business, University of Alabama)
Charles R. Knoeber () (Department of Economics, North Carolina State University)
Theofanis Tsoulouhas () (Department of Economics, North Carolina State University)

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Abstract

We argue that outsiders are handicapped in CEO successions to strengthen the incentive that the contest to become CEO provides inside candidates. Handicapping implies that a firm is more likely to pick an insider for the CEO position where insiders are more comparable to each other and less comparable to outsiders, and where there are more inside candidates. Using a novel measure of the comparability of insiders based on firm organizational structure, we analyze over 1,000 CEO successions in large U.S. firms over the 1974-1995 period and find a variety of evidence consistent with these implications of handicapping.

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File URL: ftp://ftp.ncsu.edu/pub/ncsu/economics/RePEc/pdf/succession.pdf
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Paper provided by North Carolina State University, Department of Economics in its series Working Paper Series with number 003.

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Date of revision: Apr 2004
Publication status: Forthcoming in Journal of Corporate Finance, 2004
Handle: RePEc:ncs:wpaper:003

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  3. Rosen, Sherwin, 1986. "Prizes and Incentives in Elimination Tournaments," American Economic Review, American Economic Association, vol. 76(4), pages 701-15, September. [Downloadable!] (restricted)
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  4. Steven N Kaplan, 1994. "Top Executives, Turnover and Firm Performance in Germany," CEPR Financial Markets Paper 0045, European Science Foundation Network in Financial Markets, c/o C.E.P.R, 53--56 Great Sutton Street, London EC1V 0DG.
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  10. Mike Burkart & Fausto Panunzi & Andrei Shleifer, 2003. "Family Firms," Journal of Finance, American Finance Association, vol. 58(5), pages 2167-2202, October. [Downloadable!] (restricted)
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  1. Lisa H C Soh, 2005. "How Different are Universities from Companies? Financial Reporting Perspectives and the Market for Vice Chancellors (Part 5)," Economics Discussion / Working Papers 05-13, The University of Western Australia, Department of Economics. [Downloadable!]
  2. M. Martin Boyer & Hernan Ortiz Molina, 2004. "Career Concerns of Top Executives, Managerial Ownership and CEO Succession," CIRANO Working Papers 2004s-34, CIRANO. [Downloadable!]
  3. Lisa H C Soh, 2005. "The Market for Vice-Chancellors," Economics Discussion / Working Papers 05-01, The University of Western Australia, Department of Economics. [Downloadable!]
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