Outside CEO succession is considered the last resort for boards when they fail to cope with problems through incumbent CEOs. Thus, prior studies have mainly focused on the inside/outside distinction and then investigated how the differences between inside CEOs and outside CEOs lead to different behaviors, strategies, and performance. Whereas studies on the inside/outside distinction have been widely conducted, to my best knowledge, studies on the differences among outside CEOs are limited.
Given that boards expect new outside CEOs to solve the problems that prior CEOs could not solve, it will be desirable for new outside CEOs to have proven managerial capabilities as a CEO. However, this is not the case for all outside CEOs, i.e., some outside CEOs have prior CEO experience, while others do not. However, interestingly, some firms appoint rookie outside CEOs. According to CEO succession records from S&P 1500 firms between 2011 to 2015, rookie outside CEO successions are not unique or rare events as compared with experienced outside CEO successions. However, despite the high frequencies of rookie outside CEO successions, our understanding of the determinants and consequences of rookie outside CEO successions remains limited. I aim to fill such a gap in this dissertation.
In the first study, I examine when and why some firms appoint rookie outside CEOs. The main argument of the first study is that boards in poorly performing firms have an order of priority, which is based on CEO origin and prior CEO experience, in selecting new CEOs, and the priority will change depending on prior CEO characteristics. Using CEO succession records from S&P 1500 between 2011 and 2015, I found that the negative effect of pre-succession firm performance on experienced outside CEO succession is higher than that on rookie outside CEO succession. Further, I found that two prior CEO characteristics (i.e., prior CEO tenure and power) increase the negative effect of pre-succession firm performance on rookie outside CEO succession. These results suggest that although boards searching for outside CEOs prefer external candidates with prior CEO experience, prior CEO characteristics influences boards' evaluation of the appropriate type of outside CEOs.
The second study explores how new rookie outside CEOs overcome initial survival challenges. The main argument is that rookie outside CEOs, who are dependent on and vulnerable to their boards, will manage their relationships with their boards by engaging in ingratiation. Further, I argue that rookie outside CEOs' ingratiation reduces their employment risk under poor firm performance. Using subsample of the first study, I found that rookie outside CEOs are more likely to ingratiate themselves with their boards than other CEOs. I also found that rookie outside CEOs' employment risk under poor firm performance is reduced as ingratiation increases. The findings suggest that rookie outside CEOs manage their dependence and vulnerability through such social influence tactics as ingratiation.
The third study examines how the lack of CEO experience affects new CEOs' strategic changes. The main argument is that rookie outside CEOs actively initiate new strategies in ways to limit the failure risk of the new strategies. Using information about strategic changes for the first three-years of new CEO tenure, I found that that there is no difference in strategic dynamism (i.e., the degree to which a firm's strategies are different from its previous ones) between experienced and rookie outside CEOs. However, rookie outside CEOs are more likely to decrease strategic deviance (i.e., the degree to which a firm's strategies are dissimilar to the industry norms of competition) than experienced outside CEOs. Further, I found several succession contexts that affect rookie outside CEOs' tendency to increase strategic dynamism and decrease strategic deviance. These findings suggest that rookie outside CEOs confirm the industry norms to manage the failure risk of strategic changes.