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Internal managerial promotions: Insider incentives and CEO succession

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  • Mobbs, Shawn
  • Raheja, Charu G.

Abstract

We identify and compare firms that promote a single executive (successor-incentive) and companies that conduct tournaments (tournament-incentive) among inside managers to succeed the CEO. Successor-incentive firms give more pay-for-performance compensation to the designated successor, are more likely in firms or industries where firm-specific human capital is more important to the CEO position and where the supply of potential outside CEO replacements is limited. In addition, these firms are associated with lower CEO turnover sensitivity to firm performance. Restricting firms that are suited for a successor-incentive promotion to a tournament-incentive promotion is associated with lower firm valuation.

Suggested Citation

  • Mobbs, Shawn & Raheja, Charu G., 2012. "Internal managerial promotions: Insider incentives and CEO succession," Journal of Corporate Finance, Elsevier, vol. 18(5), pages 1337-1353.
  • Handle: RePEc:eee:corfin:v:18:y:2012:i:5:p:1337-1353
    DOI: 10.1016/j.jcorpfin.2012.09.001
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    References listed on IDEAS

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    Cited by:

    1. Haß, Lars Helge & Müller, Maximilian A. & Vergauwe, Skrålan, 2015. "Tournament incentives and corporate fraud," Journal of Corporate Finance, Elsevier, vol. 34(C), pages 251-267.
    2. Mao, Y., 2013. "Essays on leveraged buyouts," Other publications TiSEM 55806b61-eacb-4ba2-97c6-8, Tilburg University, School of Economics and Management.
    3. Fiordelisi, Franco & Ricci, Ornella, 2014. "Corporate culture and CEO turnover," Journal of Corporate Finance, Elsevier, vol. 28(C), pages 66-82.

    More about this item

    Keywords

    CEO succession; Organization structure; Tournament; Compensation; Firm performance;

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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