Successor CEO Functional and Educational Background

This study seeks to examine if boards consider CEO educational and functional background when choosing a new CEO. It also examines which factors determine whether the board of directors will seek an incoming CEO with a different educational and/or functional background from that of the current CEO. Using a sample of 832 successions between 1992 and 2009, we found that the outgoing CEO and the firm characteristics influence the selection of the 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. 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 institution...