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We Are the World

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Submitted By nuofan972183
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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 serve for this purpose. Maintaining larger ownership stakes upon appointment at the CEO position is less costly for more talented managers because they can more profitably run the firm. As a result managers should use their ownership in the firm to signal their ability to the board; and more talented managers should own a larger equity stake in the firm than less talented managers. After developing the conceptual framework in which the ownership decisions of managers with career concerns signal managers’ talent to the board, Researchers derive and empirically test several predictions relating CEO appointment decisions, managerial ownership and executive departure surrounding CEO succession events. The first two predictions follow directly from the intuition that higher insider ownership signals higher managerial ability. First, the board is more likely to appoint an outsider when the insiders’ ownership in the firm is low. Second, conditional on the decision to appoint an insider, the board is more likely to appoint CEO the manager whose ownership in the firm is larger.
The next two predictions relate changing career opportunities

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