Internal vs. external successions and their effect on firm performance

An examination of 165 top management successions in U.S. firms during 1989- 91 reveals that external successions are more likely in small firms, in fir ms with poor economic performance, and in firms which offer the successor s everal top positions (for example, Chairman and CEO). This last finding ill ustrates that successor's interests and demands (such as organizational pow er) are also important in determining the final match between manager and f irm. We also find that, on average, the postsuccession performance of exter nal successors is superior to that of internal successors. This could indic ate that the Board of Directors faces an agency problem, leading it to appo int too often from inside.