Do Boards Know when they Hire a CEO that is a Good Match?

Are CEO initial compensation packages based on variations in the expected match quality of the hiring firms? Using CEO tenure as a proxy for expected match quality, and a sample of CEO turnovers between 1992 and 2006, we find that CEOs that experience good matches, defined as tenures exceeding four years, have higher initial compensation packages. We also find evidence from exogenous switching regression models that inside CEOs receive a higher good match premium than outside CEOs. To account for economic and regulatory changes across our sample period, we divide our sample into three subsamples: 1992–1997, 1998–2002, and 2003–2006, and repeat our analyses. Even though the positive relation between expected match quality and initial compensation persists across all periods, we find that the good match premium for inside and outside CEOs does not differ in the post-2002 period. We attribute this result to increased board independence and changes in regulation (Sarbanes–Oxley) in the post-2002 sample period.

Publication Information
Article Title: Do Boards Know when they Hire a CEO that is a Good Match?
Journal: Journal of Corporate Finance (2012)
18 (1051-1064)
Author(s): Allgood, Sam;  Farrell, Kathy;  Kamal, R.
Researcher Information
Allgood, Sam
Allgood, Sam
Edwin J. Faulkner Professor of Economics
  • Economic Education
  • Labor Economics (wages, employment, working conditions, unions)
  • Microeconomics
HLH 525 V
P.O. Box 880489
University of Nebraska-Lincoln
Lincoln, NE 68588-0489, USA
Phone: (402) 472-3367
Fax: (402) 472-4426
Farrell, Kathy
Farrell, Kathy
James Jr. and Susan Stuart Endowed Dean of the College of Business
  • Corporate Finance
  • Executive Compensation
Office of the Dean
HLH 301 D
P.O. Box 880405
University of Nebraska-Lincoln
Lincoln, NE 68588-0405, USA
Phone: (402) 472-9500
Fax: (402) 472-5140