The Market for CEOs: An Empirical Analysis

49 Pages Posted: 14 Jun 2010 Last revised: 2 Dec 2013

See all articles by Varouj A. Aivazian

Varouj A. Aivazian

University of Toronto - Rotman School of Management

Tat‐kei Lai

Mohammad M. Rahaman

Saint Mary's University - Sobey School of Business

Date Written: February 8, 2013

Abstract

We investigate empirically a market-based explanation for the rise in recent years in external CEO hiring and compensation. Consistent with the market-based theory, we find that firms in industries relying on general managerial skills are more likely to hire CEOs externally than firms in industries relying less on such skills. We show that firms relying on internal CEOs have on average higher profits than external-CEO firms and that the difference in profits decreases as general skills become more important in the industry. We relate managerial skills to compensation and show that CEO general skills induce better firm performance and higher compensation.

Keywords: CEO Turnover, CEO Skills, CEO Compensation, General Skills

JEL Classification: G30, J40

Suggested Citation

Aivazian, Varouj A. and Lai, Tat-kei and Rahaman, Mohammad M., The Market for CEOs: An Empirical Analysis (February 8, 2013). Journal of Economics and Business, Vol. 67, May-June, 2013, Available at SSRN: https://ssrn.com/abstract=1624007 or http://dx.doi.org/10.2139/ssrn.1624007

Varouj A. Aivazian

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Department of Economics
Toronto, Ontario M5S 3E6
Canada
416-978-2375 (Phone)
416-978-5433 (Fax)

Mohammad M. Rahaman (Contact Author)

Saint Mary's University - Sobey School of Business ( email )

Halifax, Nova Scotia B3H 3C3
Canada

No contact information is available for Tat-kei Lai

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