CEO Appointments and the Loss of Firm-specific Knowledge - Putting Integrity Back into Hiring Decisions

Katja Rost, Søren Salomo

Research output: Chapter in Book/Report/Conference proceedingArticle in proceedingsResearchpeer-review

Abstract

A rarely studied trend in corporate governance is the increasing tendency to fill CEO openings through external hires rather than through internal promotions: Kevin J. Murphy and Ján Zábojník (2004) show that the proportion of outside hires has doubled and their pay premium almost quadrupled over the last thirty years. Assuming that general managerial skills are becoming more important relative to firm-specific skills, the authors conclude that competition in the managerial labor market establishes optimal contracts. In our model and our empirical analysis we question this explanation by assuming that over the past decades the dishonesty of the predecessor has become relatively more important for the appointment decisions of firms. We conclude that outside hires are a suboptimal trend because external candidates even step up the regression of integrity in firms: As nobody has an incentive to invest in firm-specific knowledge, not only the performance of firms drops, but also the remaining integrity.
Original languageEnglish
Title of host publication70. Jahrestagung des Verbands der Hochschullehrer für Betriebswirtschaft
Publication date2008
Publication statusPublished - 2008
Event70. Jahrestagung des Verbands der Hochschullehrer für Betriebswirtschaft : Die Betriebswirtschaftslehre und ihre Nachbardisziplinen - Freie Universität Berlin, Germany
Duration: 1 Jan 2008 → …

Conference

Conference70. Jahrestagung des Verbands der Hochschullehrer für Betriebswirtschaft : Die Betriebswirtschaftslehre und ihre Nachbardisziplinen
CityFreie Universität Berlin, Germany
Period01/01/2008 → …

Keywords

  • external hires
  • CEO Appointments
  • suboptimal contracts

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