Internal managerial promotions: Insider incentives and CEO succession |
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| Authors: | Shawn Mobbs Charu G Raheja |
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| Institution: | 1. School of Business Administration and Economics, The College at Brockport, State University of New York, Brockport, NY 14420, USA;2. School of Business, State University of New York at Oswego, Oswego, NY 13126, USA;3. Department of Finance, School of Management, Fudan University, Shanghai, China |
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| Abstract: | We identify and compare firms that promote a single executive (successor-incentive) and companies that conduct tournaments (tournament-incentive) among inside managers to succeed the CEO. Successor-incentive firms give more pay-for-performance compensation to the designated successor, are more likely in firms or industries where firm-specific human capital is more important to the CEO position and where the supply of potential outside CEO replacements is limited. In addition, these firms are associated with lower CEO turnover sensitivity to firm performance. Restricting firms that are suited for a successor-incentive promotion to a tournament-incentive promotion is associated with lower firm valuation. |
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