Review of Finance Vol. 28 No. 1 2024

Do Insiders Hire CEOs with High Managerial Talent?

Jason D Kotter¹; Yelena Larkin²

¹ Marriott School of Business, Brigham Young University, · ² Schulich School of Business, York University ,

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.

DOI

10.1093/rof/rfad016

Volume

28

Issue

1

Pages

271-310

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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