Abstract
A firm’s ability to quickly recover from setbacks is of great importance to its stakeholders and investors. Although critics argue that inside directors decrease the monitoring effectiveness of a board, inside directors arguably possess superior firm specific experience and knowledge. The main purpose of this paper is to investigate the roles of non-CEO inside directors using the context of sudden CEO departures when immediate CEO succession planning is of great importance. Using a unique data set of 351 sudden CEO departures from 1993 to 2009, we find evidence that firms with non-CEO inside directors face fewer disruption costs and have superior performance following the change in CEO, especially when the firm hires an outsider as the new CEO.
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