Are interim CEOs just caretakers? |
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| Institution: | 1. School of Finance, Southwestern University of Finance and Economics, 555, Liutai Avenue, Wenjiang District, Chengdu 611130, Sichuan, PR China;2. College of Business, Department of Economics and Finance, City University of Hong Kong, Tat Chee Avenue, Kowloon, Hong Kong Special Administrative Region;1. Department of Accounting and Finance, University of Bristol, UK;2. Warwick Business School, University of Warwick, U.K. Competition and Markets Authority, UK;1. Sy Syms Professor of Finance, Sy Syms School of Business, Finance Department, Yeshiva University, New York, NY 10033, USA;2. Utrecht School of Economics, Utrecht University, Kriekenpitplein 21-22, 3584 EC, Utrecht, The Netherlands;3. Research Fellow, Knut Wicksell Center for Financial Studies, Lund University, Lund, Sweden;1. Shanghai Univ. of Finance & Economics, China;2. University of Manitoba, Canada;3. Fanhai Int''l School of Finance, Fudan Univ., China |
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| Abstract: | Interim CEOs are often viewed as caretakers during CEO transition periods. However, the caretaker function does not fully explain the increasing trend in the use of interim CEO appointments. Recent studies suggest that firms also use the interim position to test potential CEO candidates. This paper empirically examines this argument using a hand-collected dataset of 1936 CEO successions between 1994 and 2014. We find evidence that firms consider interim positions as a testing ground for CEO candidates. Specifically, we find that candidates with uncertain managerial abilities are more likely to be initially named as interim CEOs rather than permanent CEOs. We also find that interim CEOs are more likely to be promoted to the permanent CEO position when they have better interim-period performance attributable to managerial skills. Consistent with the testing-ground option hypothesis, we find interim CEOs promoted to the permanent position result in superior long-run performance, suggesting better CEO-firm matches. |
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