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 to 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 skill sets contribute to the existence and length of these gaps. Using theories from labor economics, we predict (equilibrium) associations between two measures of "fit" (executive

CEO education and the ability to raise capital

“…The information on mergers and acquisitions required to construct this variable is collected from the SDC Mergers & Acquisitions database. As already noted, the 5‐year lag allows for the expiration of retention contracts that work as “golden handcuffs” for managers, and thus, Acquisitions j , s , t −5 works as a measure of the supply of managers from state s in industry j in year t. Enforceability Index s , t is an index that measures the enforceability of noncompete agreements across different U.S. states based on Garmaise (2011) and updated from Ertimur, Rawson, Rogers, and Zechman (2018). 21 The enforceability index used here is constructed as the difference between 12 and the value of Garmaise's (2011) index scaled by 12, so that it potentially ranges from 0 to 1 22 .…”

“…Enforceability Index s,t An index measuring the enforceability of noncompete agreements across different U.S. states based on Garmaise (2011) and updated from Ertimur et al (2018). We multiply it by −1 so that higher values of this index indicate weaker enforceability and, hence, higher managerial mobility.…”

“…22 22 Garmaise's (2011) index measuring the enforceability of noncompete clauses originally covered the period 1992–2004. Ertimur et al (2018) adopt the same methodology and extend the index to cover the period 1980–2014. In our analysis, we utilize the values of the index from Garmaise (2011) for the period 1992–2004 and from Ertimur et al (2018) and Kini et al (2019) for the period 2005–2014.…”

No System Is Perfect: Understanding How Registration‐Based Editorial Processes Affect Reproducibility and Investment in Research Quality

“…Ertimur et al. [] hand‐collect data on the employment dates of 2,036 external CEO hires from news articles and various SEC filings (of which 1,538 were included in their final sample). Hail, Tahoun, and Wang [] oversee dozens of research assistants who gathered information on press coverage of corporate scandals and regulations in 26 countries over 216 years to evaluate how those two time series are associated.…”

“…Conference attendees raised a number of directions to flesh out Ertimur et al. [] through additional data gathering and analysis. Additional data gathering could provide insight into how CEOs spent their time during gap years, which would shed more light on the causes and consequences of long gaps.…”