Career Concerns of Top Executives, Managerial Ownership and CEO Succession

摘要

Manuscript Type: Empirical Research Question/Issue: We hypothesize that a top manager's stock ownership in the firm signals to the board information about his or her privately known ability to run the company. As a consequence, the outcome of a CEO succession is affected by the managers' ownership choices, which therefore depend on their career concerns. Research Findings/Results: Our study of CEO turnover events in US firms provides support for our basic hypothesis. Specifically, we find that (1) lower insider ownership makes outside CEO succession more likely; (2) higher ownership by an insider increases his or her chances of promotion; (3) non-appointed managers with higher ownership are more likely to reduce their ownership stake or to leave the firm following CEO succession; and (4) ownership reduction and departure decisions are more likely following outside CEO appointments. Theoretical Implications: Consistent with signaling theory, our analysis suggests that (1) managerial ownership plays a role in resolving asymmetric information problems between top managers and the board of directors in the context of CEO succession, and (2) managers' portfolio decisions and their departure decisions are driven in part by their career opportunities in the firm. Practical Implications: By monitoring managerial ownership decisions surrounding CEO turnover, boards of directors can acquire information about the potential candidates' ability to run the firm and thus better identify the best successor. As managers can more easily signal their information to the board when their ownership choices are observable to the public, security laws that encourage the disclosure of managers' beneficial ownership stakes may increase the efficiency of boards' choices and firm value.