Journal of Financial and Quantitative Analysis Vol. 31 No. 3 1996

Outside Directors and CEO Selection

Kenneth A. Borokhovich¹; Robert Parrino²; Teresa Trapani³

¹ Wayne State University · ² The University of Texas at Austin · ³ Norwegian Public Roads Administration

Abstract

This paper documents a strong positive relation between the percentage of outside directors and the frequency of outside CEO succession. The likelihood that an executive from outside the firm is appointed CEO increases monotonically with the percentage of outside directors. This monotonic relation is observed for both voluntary and forced departures. Evidence from stock returns around succession announcements indicates that, on average, shareholders benefit from outside appointments, but are harmed when an insider replaces a fired CEO.

DOI

10.2307/2331395

Volume

31

Issue

3

Pages

337

Sources

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