Internal vs. External Successions and Their Effect on Firm Performance

An examination of 165 top management successionsin U.S. firms during 1989-91 reveals that externalsuccessions are more likely in small firms, in firmswith poor economic performance, and in firms which offer the successor several top positions (forexample, Chairman and CEO). This last findingillustrates that successor's interests and demands (suchas organizational power) are also important indetermining the final match between manager and firm. Wealso find that, on average, the postsuccessionperformance of external successors is superior to thatof internal successors. This could indicate that theBoard of Directors faces an agency problem, leadingit to appoint too often from inside.