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Outside Directors and CEO Selection

Kenneth A. Borokhovich, Robert Parrino and Teresa Trapani
The Journal of Financial and Quantitative Analysis
Vol. 31, No. 3 (Sep., 1996), pp. 337-355
DOI: 10.2307/2331395
Stable URL: http://www.jstor.org/stable/2331395
Page Count: 19
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Outside Directors and CEO Selection
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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.

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