We Are the World Essay

1438 Words Feb 2nd, 2013 6 Pages
MBA 505 Financial management

Research Paper

BASED ON
Career Concerns of Top Executives, Managerial Ownership and CEO Succession
By M. Martin Boyer and Hernán Ortiz-Molina

Career Concerns of Top Executives, Managerial Ownership and CEO Succession

INTRODUCTION
This research shows that how a top manager’s stock ownership in the firm affects their chance of appointment in CEO succession events and how non-appointed managers with higher ownership reacts to search of better career opportunities elsewhere following the CEO turnover event. Career concerns induce top managers to take costly actions that improve their chances of appointment in CEO succession events. This research posits that managerial ownership choices can
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When their chances of promotion to CEO vanish after the appointment of another executive, these non-appointed managers are more likely to reduce their investment in the firm to diversify the risk of their portfolio. Moreover, ownership reductions by non-appointed managers are more likely following outside succession because such succession events convey worse news about their career prospects in the firm.
The last two predictions relate changing career opportunities to executive departures. Since more talented managers choose higher ownership, non-appointed executives with higher ownership are more likely to leave the firm in search of better career opportunities elsewhere following the CEO turnover event. Moreover, non-appointed insider departures are more likely following outside succession due to the additional negative information about their career prospects contained in such board decision.
HYPOTHESES DEVELOPMENT
Career concerns naturally arise whenever the labor market uses an employee’s observable actions to update its beliefs about his or her privately known ability, and then uses these beliefs to base promotion, remuneration, or appointment decisions. If more talented employees can take a costly action that is too costly for less talented ones to mimic, then they can effectively signal their talent to the employer and increase their value in the labor market. Subsequent

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