Abstract
We investigate an increasingly prevalent CEO succession strategy - recruiting CEOs from the firms’ board of directors (Director-CEOs). Director-CEO appointments may be part of a planned succession because Director-CEO combine insiders’ firm-specific knowledge with outsiders’ new perspectives. Conversely, Director-CEO appointments may signal succession failures when boards could not find a new CEO. Consistent with the latter, we find that Director-CEO appointments are associated with negative market reaction, deterioration in performance, and shorter ex-post tenure. We find no evidence that poor firm quality drives the results. Overall, Director-CEO appointments are a distinct succession strategy that has important consequences for firm performance.
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