Insider vs. outsider CEO and firm performance: Evidence from the Covid-19 pandemic

https://doi.org/10.1016/j.frl.2021.102609Get rights and content

Highlights

  • We examine the association between a CEO's previous status (insider or outsider) and firm performance during the Covid-19 crisis period in 2020.

  • We find that insider CEOs outperform outsider CEOs by 0.51% margin in quarterly return on assets.

  • Outperformance under insider CEOs is observed in firms holding more cash in hand and firms with higher proportion of internally promoted non-CEO executives.

Abstract

We examine the connection between firm performance and a CEO's previous position (inside or outside the firm), using Covid-19 as an exogenous shock. Firms led by insider CEOs outperformed those led by outsider CEOs in terms of return on assets during the Covid-19 crisis period in 2020, but there was no performance differential in the period before the crisis. Additional tests indicate that outperformance under insider CEOs is observed in firms holding more cash and firms with a higher proportion of internally promoted non-CEO executives. These findings have important implications for boards of directors making CEO appointments.

Keywords

Insider CEO
Outsider CEO
Firm performance
Covid-19

JEL Classifications

G30
J24
B26
G34

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