Insider vs. outsider CEO and firm performance: Evidence from the Covid-19 pandemic

Md Reiazul Haque; Bobae Choi; Doowon Lee; Sue Wright

doi:10.1016/j.frl.2021.102609

Insider vs. outsider CEO and firm performance: Evidence from the Covid-19 pandemic

Financ Res Lett. 2022 Jun:47:102609. doi: 10.1016/j.frl.2021.102609. Epub 2021 Dec 3.

Authors

Md Reiazul Haque¹, Bobae Choi², Doowon Lee², Sue Wright³

Affiliations

¹ University of Newcastle, Australia & Hajee Mohammad Danesh Science and Technology University, Bangladesh.
² University of Newcastle, Australia.
³ University of Technology Sydney, Australia.

Abstract

We examine the connection between firm performance and a CEO's previous position (inside or outside the firm), using Covid-19 as an exogenous shock. Firms led by insider CEOs outperformed those led by outsider CEOs in terms of return on assets during the Covid-19 crisis period in 2020, but there was no performance differential in the period before the crisis. Additional tests indicate that outperformance under insider CEOs is observed in firms holding more cash and firms with a higher proportion of internally promoted non-CEO executives. These findings have important implications for boards of directors making CEO appointments.

Keywords: Covid-19; Firm performance; Insider CEO; Outsider CEO.