Bridging the Gap: Evidence from externally hired CEOs

Abstract

We investigate executive employment gaps (hereafter, gaps) between the appointment of an external CEO at a public firm and the individual’s prior executive position at a public company. These gaps cannot be reliably obtained from common databases. We hand collect data for externally hired CEOs at public companies from 1992-2014. These CEOs represent approximately 40% of the 5,095 CEO successions and have a mean gap of 1.9 years. The gap increases to 3.2 years for the subset of new hires with a gap. We hypothesize that labor market frictions and executive skillsets contribute to the existence and length of these gaps. Using theories from labor economics, we predict (equilibrium) associations between two measures of “fit” (executive compensation and long-term match quality) and gaps (both existence and length). Finally, we provide descriptive evidence on what executives do (e.g., sit on boards, work for private consulting companies, or consume leisure) during their gaps. This project was subject to and published through a registered report process. Any tests that were not included in the accepted proposal are marked as unplanned analyses.