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Do Insiders Hire CEOs with High Managerial Talent?

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Listed:
  • Jason D Kotter
  • Yelena Larkin

Abstract

We examine the effect of the composition of the board of directors on the firm’s chief executive officer (CEO) hiring decision. Using a novel measure of managerial talent, characterized by an individual’s ascent in the corporate hierarchy, we show that firms with non-CEO inside directors tend to hire CEOs with greater managerial skills. This effect obtains for both internal and external CEO hires; moreover, the effect is pronounced when inside directors have stronger reputational incentives and limited access to soft information about the candidate. Our findings demonstrate that boards with inside directors more effectively screen for managerial talent, thereby improving the CEO hiring process.

Suggested Citation

  • Jason D Kotter & Yelena Larkin, 2024. "Do Insiders Hire CEOs with High Managerial Talent?," Review of Finance, European Finance Association, vol. 28(1), pages 271-310.
    • Handle: RePEc:oup:revfin:v:28:y:2024:i:1:p:271-310.
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    File URL: http://hdl.handle.net/10.1093/rof/rfad016
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    More about this item

    Keywords

    Executive directors; Inside directors; CEOs; Talent; Human capital; Board of directors;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • J44 - Labor and Demographic Economics - - Particular Labor Markets - - - Professional Labor Markets and Occupations

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