Career Concerns of Top Executives, Managerial Ownership and CEO Succession

35 Pages Posted: 28 Feb 2006

See all articles by M. Martin Boyer

M. Martin Boyer

HEC Montreal - Department of Finance

Hernan Ortiz-Molina

University of British Columbia (UBC) - Sauder School of Business

Date Written: 2006

Abstract

We argue that portfolio choices can play a role in resolving asymmetric information problems between top managers who aspire to run the firm and the board of directors who must appoint a new CEO. Our intuition is that if ownership of the firm's stock serves to convey a manager's private information to the board, then ownership choices are partially determined by managerial career concerns and could affect the outcome of CEO succession. The outcome of CEO succession may, in turn, affect the career opportunities available to managers, which can affect both managerial ownership and executive departure decisions. In this context, we develop and test several predictions relating board and managers' decisions surrounding CEO turnover: 1- lower ownership by inside managers makes outside CEO appointments more likely; 2- higher ownership by an insider increases her chances of being appointed CEO; 3- non-appointed managers with higher ownership are more likely to reduce their ownership stake or to leave the firm following a CEO replacement; and 4- ownership reduction and departure decisions are more likely following outside CEO appointments. Using data on managerial ownership, executive departures, and board appointment decisions for 1,123 CEO turnover events, we find evidence supporting these predictions.

Keywords: Managerial compensation, CEO succession, Portfolio allocation

JEL Classification: G32, G34

Suggested Citation

Boyer, M. Martin and Ortiz-Molina, Hernan, Career Concerns of Top Executives, Managerial Ownership and CEO Succession (2006). Sauder School of Business Working Paper, Available at SSRN: https://ssrn.com/abstract=886507 or http://dx.doi.org/10.2139/ssrn.886507

M. Martin Boyer (Contact Author)

HEC Montreal - Department of Finance ( email )

3000 Chemin de la Cote-Sainte-Catherine
Montreal, Quebec H3T 2A7
Canada

Hernan Ortiz-Molina

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada
604-822-6095 (Phone)
604-822-4695 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
253
Abstract Views
2,153
rank
151,128
PlumX Metrics