Experience Matters? The Impact of Prior CEO Experience on Firm Performance

Abstract

We sample CEOs of the 2005 S&P 500 corporations to look at the relationship between experience in the CEO position of a different fi rm and the postsuccession fi nancial performance of the fi rm that they currently lead. We fi nd that experience in the CEO position is negatively related to fi rm performance. CEOs who directly move to their current CEO position from the previous one and those with job-specifi c experience in the same or related industry or at the helm of a previous company similar in size to the current one are associated with signifi cantly lower post-succession performance than those without prior CEO experience. The results contribute to the literatures on CEO succession, the performance effect of job-specifi c experience, and the transferability of human capital.

The Value of CEO Mobility: Contextual Factors That Shape the Impact of Prior CEO Experience on Market Performance and CEO Compensation

“…This trend is a rapidly escalating one, moreover, as it is only in the past decade that the incidence of hiring a CEO with prior CEO experiences has represented more than 10 percent of CEO succession events in a given year (Karlsson & Neilson, ). Researchers have taken note of this trend and have recently begun to examine the impact that prior CEO experience has on subsequent hiring firms’ performance (e.g., Elsaid, Wang, & Davidson, ; Hamori & Koyuncu, ).…”

“…Interestingly, although theories of managerial human capital suggest that prior CEO experience would prove beneficial to subsequent hiring firms—as such experience should mean that the newly hired experienced CEO brings with him or her honed general management skills (Bailey & Helfat, ; Harris & Helfat, ; Murphy & Zabojnik, )—these recent studies have instead found that prior CEO experience hinders performance in the subsequent firm, at least when it comes to accounting‐based measures of performance (Elsaid et al, ; Hamori & Koyuncu, ). The rationale given for this negative effect found by this past research is that prior CEO experience is too heavily laden with the specific environments in which it was gained and therefore is not as beneficial to the new firms as the CEOs (or the hiring boards and their shareholders) believe it will be.…”

“…The rationale given for this negative effect found by this past research is that prior CEO experience is too heavily laden with the specific environments in which it was gained and therefore is not as beneficial to the new firms as the CEOs (or the hiring boards and their shareholders) believe it will be. In short, the extant evidence shows that past experience as a CEO is a detriment to success in a subsequent CEO job, primarily because experienced CEOs have to unlearn firm‐specific skills that are not useful in the new firm (Hamori & Koyuncu, ), a problem that is exacerbated by CEOs’ tendencies to become less adaptive as their experience deepens (Henderson, Miller, & Hambrick, ; Miller, ; Miller & Shamsie, ).…”

“…And does the kind of experience gained by the CEO matter for bringing such benefits? To answer these questions, we first integrate the previously reasoned logic that CEO experience comes too laden with job‐specific skills to be readily transferable across firms (e.g., Hamori & Koyuncu, ) with the insights provided by past research that has examined the cognitive and skill inflexibility that develops over the course of CEO tenures within firms (e.g., Henderson et al, ) to posit that shareholders do not generally stand to benefit from the hiring of an experienced CEO. Nevertheless, we also argue that certain contextual conditions in which the experience was gained enhance the transferability of prior CEO experience and, thus, help to increase its benefit to the subsequent hiring firm.…”

Who reports high company performance? A quantitative study of Chinese listed companies in the energy industry

“…As representatives of heterogeneous human capital, top managers play a decisive role in the processes of developing companies (Hambrick and Mason 1984; Hamori and Koyuncu 2014; Díaz-Fernández et al 2015). In Chinese listed companies, the chairman has the top decision-making authority as the delegate of the controlling shareholders, while the chief executive officer (CEO) has the top executive authority with responsibility for the daily business affairs (Michel and Hambrick 1992; Amran et al 2014; Gao and Hafsi 2015).…”