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Diane Publishing Books
CEO Successions and Firm Performance in the US Financial Industry
Antonio Falato (au); Dalida Kadyrzhanova (au)
This study examines the labor market for CEOs in the financial sector from 1988 to 2007, using a new hand-collected sample of 1,655 CEO successions. The authors document that there is a significant role of outside successions, as about one out of two successions involves an outside hire. In addition, using difference-in-differences estimates, they study the link between the labor market for finance CEOs and firm performance. They show that (1) there is a large performance gap between inside and outside successions, as outside successions are followed by significantly larger improvements in firm performance; (2) the performance gap between outside and inside successions is larger for firms with an insider dominated board of directors; and (3) the performance gap widened after an important deregulation event (the 1999 Gramm-Leach-Bliley Act). These results are robust to using a battery of firm performance measures (short-run and long-run stock market returns, and several long-run operating performance measures) and a matched sample approach to address selection issues. Overall, findings suggest that managerial human capital is very valuable in the financial industry, and weak internal governance hurts firm performance by limiting the scope of labor market competition. Tables. This is a print on demand report.
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