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Can non-CEO inside directors add value? Evidence from unplanned CEO turnovers

Laurie Krigman (Department of Finance, Babson College, Wellesley, Massachusetts, USA)
Mia L. Rivolta (Department of Finance, Xavier University, Cincinnati, Ohio, USA)

Review of Accounting and Finance

ISSN: 1475-7702

Article publication date: 29 July 2019

Issue publication date: 9 August 2019




This paper aims to investigate the roles of non-CEO inside directors (NCIDs) in the new CEO-firm matching process using the context of unplanned CEO departures when immediate CEO succession planning becomes a sole board responsibility. Although critics argue that inside directors decrease the monitoring effectiveness of a board, inside directors arguably possess superior firm-specific experience and knowledge that can be beneficial during the leadership transition.


The authors use a comprehensive, manually collected data set of unplanned CEO departures from 1993 to 2012.


The authors find that NCIDs play an important role in the CEO transitioning process. They help firms identify qualified inside replacements and provide stability as the new permanent or interim CEO. In addition, NCIDs facilitate the transfer of information and help the new external CEOs succeed. They show that the longer the NCID stays with the company, the longer the tenure of the new CEO. They also document that the presence of NCIDs improves operating and stock performance; especially when the new CEO is hired from outside of the firm.

Practical implications

The impact of NCIDs is particularly important when the firm hires an outsider as the new CEO. These results suggest that board composition affects frictions in the CEO labor market.


The literature has predominantly focused on the downside of having inside directors. Too many inside directors on a firm’s board is often associated with ineffective boards and entrenchment. To the contrary, the authors focus on a potential benefit of having inside directors.



The authors are grateful for the helpful comments and suggestions from Tracie Woidtke, Mike Ehrhardt, David Cicero, Michael Goldstein, Richard Herron, Shawn Mobbs, Jerome Taillard, Ralph Walkling, Tina Yang, Chenguang Shang, participants at the University of Tennessee Corporate Governance and Finance Department series, the speaker seminar at Babson College, the Midwest Financial Association annual meeting in 2013, the Financial Management Association annual meeting in 2014 and the 2016 European Financial Management Association meetings in Basel. The paper has also benefited from the summer research funding from the Finance Department at the University of Tennessee in 2012. A previous version of this paper circulated under the name “Board composition and organizational resilience: evidence from sudden CEO departures”.


Krigman, L. and Rivolta, M.L. (2019), "Can non-CEO inside directors add value? Evidence from unplanned CEO turnovers", Review of Accounting and Finance, Vol. 18 No. 3, pp. 456-482.



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