What Do Outside CEOs Really Do? Evidence from Plant-Level Data

Abstract

Using rich plant-level data, we analyze the relative performance of inside and outside CEOs and provide the first empirical evidence on what CEOs actually do to improve performance. Contrary to conventional wisdom, we show that, relative to insiders, outsiders achieve greater productivity improvements in both low- and high-performing firms. Efficiency gains emerge from divesting low-performing, non-core, and low-tech plants. Additionally, outsiders streamline continuing plants by cutting costs, consolidating products, adopting newer technology, and shifting to more capital-intensive production that improves labor productivity. Outsiders’ advantage in rectifying pre-turnover inefficiencies stems from their ability to stimulate change, rather than their broader experiences.