Successor CEO Functional and Education Background: Performance Antecedents and Consequences

To improve our understanding of the succession process we utilize a sample of 832 successions to examine firm and predecessor characteristics that influence the board’s choice of a successor’s functional and educational background. We find that outgoing CEO and firm characteristics influence the selection of successors’ functional backgrounds. Firms are more likely to hire new CEOs with functional backgrounds similar to the outgoing CEO. Research-oriented firms hire CEOs with the functional background that would permit them to understand the firm’s research processes. Firms with poor prior operating performance tend to hire successors with a financial/accounting background. Riskier firms are less likely to hire CEOs with a degree from an Ivy League institution. We also find that firms are more likely to change the functional background of the successor relative to the predecessor when there has been poor prior performance and the firm has higher institutional investor ownership. However, we do not find evidence that changing the functional background and/or the education level of the successor CEO improves firm performance.