Do board-CEO ties in outsider CEO succession raise companies' returns?

Purpose The role of directors in CEO succession events has evolved in recent decades with the emergence of a newly created CEO labor market. In this context, can directors potentially assist companies to identify prospective CEOs in the interests of investors or use their expanded role to serve their own and management’s interests? Design/methodology/approach Engaging several theoretical frameworks including those of asymmetric information and managerialism and considering the moderating role of CEO labor market transparency, we explore the impact of board-CEO ties in 1,136 outsider CEO successions over the past three decades, spanning a range of institutional environments in developed and developing markets and across a range of market- and accounting-based financial indicators. Findings This paper provides novel global evidence of the effect of board-CEO ties in outsider CEO successions on company performance. It finds that these relationships can serve both investors and management’s interests subject to the specific approach taken to corporate governance in the United States/Commonwealth, European and Asian national institutional environments. Originality/value This paper contributes to and extends the literature on board-CEO ties through addressing their effects on company performance in outsider CEO successions. The paper’s global, comparative analysis highlights boundary conditions to information asymmetry that are imposed by institutional differences across international jurisdictions. It demonstrates that any realized value of hiring new outsider CEOs through board referrals is conditional on the latent degree of information asymmetry that exists in specific CEO labor markets. As such, the paper also extends the economic and institutional transparency literature’s understanding of the role of macro-institutional settings in affecting the functioning of the CEO labor market.