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CEO Succession, Functional Background, Educational Background
This study seeks to examine if boards consider CEO educational and functional background when choosing a new CEO. It also examines which factors determine whether the board of directors will seek an incoming CEO with a different educational and/or functional background from that of the current CEO. Using a sample of 832 successions between 1992 and 2009, we found that the outgoing CEO characteristics and the firm characteristics influence the selection of the incoming CEO functional backgrounds. We found an increase in the likelihood of firms hiring incoming CEOs with the same functional backgrounds as the outgoing CEOs. Incoming CEOs with functional backgrounds in engineering/manufacturing are more likely to be hired by research-oriented firms.
Incoming CEOs with functional backgrounds in accounting/finance are more likely to be hired by poorly performing firms. We also find that firms are more likely to change the functional background of the successor relative to the predecessor when there has been poor prior performance and the firm has higher institutional investor ownership.