OUTSIDE DIRECTORS AND CEO SELECTION

This paper documents a strong positive relation between the percentage of outside directors and the frequency of outside CEO succession. The likelihood that an executive from outside the firm is appointed CEO i ncreases monotonically with the percentage of outside directors. This monotonic relation is observed for both voluntary and forced departure s. Evidence from stock returns around succession announcements indicat es that, on average, shareholders benefit from outside appointments, b ut are harmed when an insider replaces a fired CEO.