Competing to be CEO in high-tech firms: Insider, board member, or outsider candidates

In this study, we examine firm and board characteristics that predict whether a new CEO will come from the firm's current management, from the board of directors, or from outside the firm. This study is the first to recognize the potential for outside board members to compete for the CEO position. Though classified as firm outsiders, outside directors have many of the advantages of insider candidates for CEO: firm-specific knowledge and familiarity with the board of directors. This form of succession is likely to be valuable in high-technology industries, as competition is faster paced and information asymmetry is greater than in lower technology industries. In this study, we focus on a single high-tech industry (semiconductors) in the period between 1993 and 2000. We find that the presence of an heir-apparent increases the likelihood of insider succession while outsider board members' availability increases the likelihood that an outside director will become the new CEO. We also find that firms with high levels of R&D spending and rapid sales growth favor insiders as new CEOs. We discuss the implications of these findings for the CEO's relationship with the board.