This study uses a large sample of firms to examine how human capital considerations affect the process of CEO succession. Costs and benefits of succession planning are affected by a firm's level of operational complexity and human capital requirements; firms that are more complex incur greater costs to transferring firm-specific knowledge and expertise to an outsider, and should be more likely to groom an internal candidate for the CEO position. Consistent with this, I find that a firm's propensity to groom an internal candidate for the CEO position is related to firm size, degree of diversification, and industry structure. My results also suggest that succession planning is associated with a higher probability of inside succession and voluntary succession and a lower probability of forced succession. I also provide evidence that horizon problems are mitigated to some extent by having a succession plan.

We develop two measures of board composition to investigate whether directors appointed by the CEO have allegiance to the CEO and decrease their monitoring. Co-option is the fraction of the board comprised of directors appointed after the CEO assumed office. As Co-option increases, board monitoring decreases: turnover-performance sensitivity diminishes, pay increases (without commensurate increase in pay-performance sensitivity), and investment increases. Non-Co-opted Independence—the fraction of directors who are independent and were appointed before the CEO—has more explanatory power for monitoring effectiveness than the conventional measure of board independence. Our results suggest that not all independent directors are effective monitors.

Dividend-paying firms tend to manage earnings upward when their earnings would otherwise fall short of expected dividend levels. This behavior is evident only in firms with positive debt and is more aggressive prior to the Sarbanes-Oxley Act, subsequent to the 2003 dividend tax cut, in high-payout firms, in firms whose CEOs receive higher dollar dividends and have higher pay-performance sensitivities, and in firms that raise less outside equity. Moreover, this earnings management behavior appears to significantly impact the likelihood of a dividend cut. Our findings imply that managers treat expected dividend levels as an important earnings threshold.

In this study, we take a comprehensive look at asymmetry in pay for luck, which is the finding that CEOs are rewarded for good luck, but are not penalized to the same extent for bad luck. Our main takeaway, which is based on over 200 different specifications, is that there is no asymmetry in pay for luck. Our finding is important given that the literature widely accepts the idea of asymmetry in pay for luck and typically points to this as evidence of rent extraction.

We develop two measures of board composition to investigate whether directors appointed by the CEO have allegiance to the CEO and decrease their monitoring. Co-option is the fraction of the board comprised of directors appointed after the CEO assumed office. As Co-option increases, board monitoring decreases: turnover-performance sensitivity diminishes, pay increases (without commensurate increase in pay-performance sensitivity), and investment increases. Non-Co-opted Independence—the fraction of directors who are independent and were appointed before the CEO—has more explanatory power for monitoring effectiveness than the conventional measure of board independence. Our results suggest that not all independent directors are effective monitors.

We document the impact of having a risk committee (RC) and a chief risk officer (CRO) on bank risk using the passage of the Dodd Frank Act as a natural experiment. The Act requires bank holding companies with over 10B of assets to have an RC to oversee risk management, while those with over 50B of assets are additionally required to have a CRO. We use difference-in-difference and regression discontinuity approaches to estimate the change in risk following RC and CRO adoption. Overall, we find no evidence that the RC or CRO have a causal impact on bank risk.

We examine whether CEO turnover and succession patterns vary with firm complexity. Specifically, we compare CEO turnover in diversified versus focused firms. We find that CEO turnover in diversified firms is completely insensitive to both accounting and stock-price performance, but CEO turnover in focused firms is sensitive to firm performance. Diversified firms also experience less forced turnover than focused firms. Following turnover, replacement CEOs in diversified firms are older, more educated, and are paid more when hired. Collectively, our results indicate that the labor market for CEOs is different across diversified and focused firms and that firm complexity and scope affect CEO succession.