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Historically, most CEOs were promoted from within the organization. The internal candidates offer continuity, are well known to the Board, and have deep institutional knowledge. However, if the Board is seeking changes to the firm’s strategy, operations, or culture, they turn to outside candidates with proven track records. Shareholders react positively to the announcement of an external successor but the longer-term evidence on the performance front is mixed. Most empirical studies have tended to focus on a narrow aspect of the hiring choice, whereas we undertake a more holistic examination involving various elements.

We consider the salience of the CEO hiring choice from several perspectives: educational background, gender, compensation, and firm performance. We use a propensity score matching approach to ensure comparability between internally promoted and externally hired CEOs. The observed covariates for the matching algorithm include firm size, CEO tenure, and industry sector.

We find that external CEOs are significantly more likely to have received their undergraduate degree from an elite institution, majored in a STEM discipline, and earned an MBA credential. They earn higher total compensation (with a higher proportion of equity-linked performance pay) but do not outperform in terms of the ROA or Tobin’s Q metrics. Gender does not appear to play a distinguishing role in the internal versus external hiring choice. We also do not detect significant differences in firm performance outcomes associated with educational pedigree, a STEM education, or an MBA credential, whether the CEO is internally promoted or hired externally.

Our paper contributes by providing novel evidence on the impact of educational background on external CEO hiring decisions. Our findings carry implications for testing hypotheses stemming from signaling theory and exploring the significant role of social networks associated with elite educational institutions. Also, the finding that externally appointed CEOs do not outperform their internally promoted counterparts may be noteworthy for corporate boards' hiring committees, especially when reviewing candidates who are edge cases.

The purpose of this paper is to investigate executive compensation in the finance sector during the periods surrounding the crisis with a view to determining whether compensation incentives were associated with excessive risk taking.

The authors compare pay-for-performance sensitivity (PFPS) parameters for the finance sector before, during, and after the financial crisis. The authors also employ the technology sector as a comparison benchmark.

The authors find that CEO compensation is strongly associated with the accounting-based return on assets performance measure in the finance sector particularly in the pre-crisis period; the relationship is amplified in larger firms. In contrast, the technology sector exhibits PFPS only for the market-based stockholder return measure with smaller firms displaying greater sensitivity.

From a public policy perspective, it is desirable that PFPS for senior executives in the finance sector is muted. This is due to the risk-shifting incentives specific to the sector whereby profits flow to managers/stockholders while catastrophic losses can be socialized through taxpayer funded bailouts. The findings imply that compensation practices in the finance sector remain a potential concern for systemic stability. In addition to academics and practitioners, the paper may be of interest to financial regulators. In the authors opinion they should consider monitoring PFPS in addition to capital ratios, credit default swap spreads, and other metrics in their risk containment strategies.

The corporate finance literature has largely treated individual managers as uniform entities, leaving unexplained the large heterogeneity in corporate practices. The authors explore whether educational background attributes, such as a bachelor's degree from an elite institution and the field of study, influence CEO management style manifested in objectively measurable outcomes at the firm level.

The authors construct a unique data set from various sources. The management-style variables encompass investment, financial, organizational strategy policy choices, and performance outcomes. They standardize the style variables by industry sector and express deviations from industry means into three categories (low, medium, high). The ordered logit models suggest that educational background attributes influence management style across several dimensions.

The authors document numerous statistically and economically significant results. For instance, an elite education translates to superior market performance as measured by Tobin's Q. A background in science/technology manifests in more (less) spending on R&D (advertising) and less exposure to financial risk for the firm. The authors also find that gender plays almost no role, while CEO age has a nonlinear influence role in affecting management style.

The study posits that educational background plays an important role along several dimensions such as skill and character development, signaling and network building. While these effects are difficult to disentangle, they all arguably influence an individual's ability to perform complex tasks such as running a company.

The paper contributes to the growing literature on the drivers of CEO style and performance. Previous studies have examined the role of a CEO's elite educational background on firm performance outcomes and have reported either no or limited association. In contrast, the authors document that an elite education is strongly linked to superior market performance but not to accounting-based performance measures. They also find that CEOs who major in science/technology exhibit markedly different management styles compared to their counterparts with backgrounds in business/economics or the humanities.

One of the key elements of survival models is that they enable the researcher to determine whether the length of time an individual (or economic entity) spends in a particular state affects the probability of exiting that state. Natural applications in economics and finance include the analysis of unemployment spells, corporate bankruptcies and mortgage pre‐payments. The distinguishing feature of most applications is the definitive event that marks the transition from the origin to the transition state. We believe that limiting the use of survival analysis to applications in which the event duration appears to be ‘naturally’ available is an unnecessary constraint. For example, the date of emergence from Chapter 11 bankruptcy protection is a subjective management decision and the true event duration, though treated as definitive, is in reality quite ambiguous. We propose that survival models can and should be extended to analyze researcher‐defined events such as the length of time a stock takes to reach a preset price target. We illustrate our point with an examination of IPO aftermarket behavior.

Managerial practice differs from standard capital budgeting theory in a number of respects. For example, managers often take projects that have negative NPV (e.g., R & D investments) due to their flexibility, synergy strategic positioning etc. Furthermore, managers continue to use accounting‐based measures in capital budgeting even though NPV is widely accepted as the only correct valuation measure. In fact, managers and strategists probably have always attempted to intuitively attach value to a variety of “strategic” and other concerns, even when they couldn't quantify them.