Inducement grants, hiring announcements, and adverse selection for new CEOs

We examine how adverse selection problems when hiring new external CEOs affect contractual features of inducement grants. Focusing on the sensitivity of inducement grants to the new CEO announcement return ($ Sensitivity ), we find that firms provide inducement grants that are more sensitive to the...

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Bibliographic Details
Published inReview of accounting studies Vol. 25; no. 1; pp. 279 - 312
Main Authors Cadman, Brian, Carrizosa, Richard, Peng, Xiaoxia
Format Journal Article
LanguageEnglish
Published New York Springer US 01.03.2020
Springer Nature B.V
Subjects
Accounting/Auditing
Adverse selection
Appointments & personnel changes
Business and Management
Chief executive officers
Corporate Finance
Hiring
Incentives
International taxation
Non-Conference Submission
Professional recruitment
Public Finance
Adverse selection
CEO turnover
Inducement grants
J33
M52
M12
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Summary:We examine how adverse selection problems when hiring new external CEOs affect contractual features of inducement grants. Focusing on the sensitivity of inducement grants to the new CEO announcement return ($ Sensitivity ), we find that firms provide inducement grants that are more sensitive to the new CEO announcement return when information asymmetry about the new CEO is more severe and the costs of adverse selection problems are higher. We also find a positive relation between the market reaction to the appointment and $ Sensitivity . We consider factors that reduce information asymmetry (e.g., engaging a search firm or appointing internal CEOs) and find they are associated with lower sensitivity of the inducement grant to the announcement.
ISSN:1380-6653
1573-7136
DOI:10.1007/s11142-019-09517-9