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Breaking from the Past: Board Deliberativeness in CEO Selection

ABSTRACT

We argue that shared, task-specific experience of board members increases behavioral repetition.

Along these lines, we find that greater shared, task-specific experience of board members is

positively associated with CEO origin similarity in the context of CEO selection decisions. More

interestingly, however, we explore the conditions under which such repetitive behavior is

attenuated. We hypothesize that board intra- and inter-experience diversity and firm performance

volatility and performance deterioration will move the board toward increased deliberation,

which will be more consistent with breaking from past behavioral tendencies. Drawing on a

sample of 266 CEO selections over a 17-year period, we find results consistent with our

hypotheses. Practical and theoretical implications of our findings are discussed.

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There has been increased interest in the role of board experience by researchers trying to explain

a variety of strategic decisions, including acquisitions (Kroll, Walters, and Wright, 2008;

McDonald, Westphal, and Graebner, 2008), new market entry (Diestre, Rajagopalan, and Dutta,

forthcoming), and CEO succession (Westphal and Fredrickson, 2001). While prior work has

offered compelling evidence that boards tend to draw from prior experience, which may lead to

behavior persistence, an important unanswered question remains: After boards establish a pattern

of repetitive behavior, what are the factors that lead boards to break from such behavior?

Understanding the factors that trigger the disruption of repetitive behaviors has significant

organizational implications, as prior research has shown that when routines are automatically

transferred to changing situations, organizational performance may suffer (Cohen and Bacdayan,

1994). Accordingly, we explore board behavior suggestive of both the formation and the

weakening of routines in the context of CEO succession decisions.

CEO origin—determination between an internal or an external hire—has been the most

extensively explored CEO characteristic in the CEO succession literature (e.g., Zhang and

Rajagopalan, 2004). Although it is difficult to directly assess the cognitive processes of board

members, in this study we attempt to infer underlying causal routine- and heuristic-based

processes in the context of CEO succession as it relates to CEO origin. Specifically, routines are

repeated action steps that develop from process experience (Edmonson, Bohmer, and Pisano,

2001; Cohen and Bacdayan, 1994). As with routines, heuristics also develop from process

experience (Bingham and Eisenhardt, 2011), and are simple cognitive rules that may benefit

decision making because they function to organize and structure knowledge (Brewer, 1988;

Fiske and Neuberg, 1990; Wyer and Carlston, 1979). Hence, heuristics are general rules that

guide action, such as a status quo heuristic in which prior approaches are preferred (Kahneman,

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Knetsch, and Thaler, 1991). After heuristics are established, routines become specific action

steps in which a general action plan is implemented in a concrete manner (e.g., the specific steps

taken to select a CEO). Classifying information into heuristics and routines brings order to

excessive information, makes information more manageable, and speeds decision making.

However, on the other hand, because the board has to manage a significant amount of

information and meets infrequently (Vafeas, 1999), it is not surprising that boards have been

shown to develop routines that lead to persistent behaviors (Ocasio, 1994).

Our context may allow us to indirectly infer these underlying cognitive processes since

boards have the potential to oversee multiple CEO selections. This recurrent behavior gives us

the opportunity to assess board decision persistence in which selecting a current CEO of the

same origin as the prior succession is suggestive of a board heuristic or routine. Specifically, we

test whether shared, task-specific experience encourages the repetition of board behavior in the

context of CEO selection, which may be suggestive of board heuristics and routines. Perhaps of

greater interest than board behavioral persistence, however, are deviations from the prior

succession approach, which may be consistent with a more deliberative approach in which the

board breaks from heuristic- or routine-based behavior. Decision makers are deliberative when

they expend effort to more comprehensively evaluate decision situations (Fredrickson, 1984),

and although comprehensive decision making is time consuming, it generally leads to improved

decision outcomes (Bourgeois and Eisenhardt, 1988; Priem, Rasheed, and Kotulic, 1995; Dean

and Sharfman, 1996). In addition, heuristic- or routine-based decisions have been shown to lead

to predictable biases (Kahneman and Tversky, 1974; Cohen and Bacdayan, 1994), especially in

situations in which sequential decisions are complex and heterogeneous (Vuori and Vuori, in

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press). In this paper, we identify specific conditions under which boards break from experience-

based patterns in CEO selection, which might indicate more deliberative information processing.

Our theoretical approach is to draw upon work on both automatic and deliberative

decision processes. Accordingly, we first establish that shared, task-specific board experience

leads to board behavioral repetition. We then examine the moderating effects of board-level

factors, such as internal and external knowledge diversity of the board that may weaken the

effect of shared board experience on board behavioral repetition. We also assess the moderating

effects of firm-level factors, specifically (1) performance volatility, which likely makes

heuristics and routines derived from past experience less reliable; and (2) firm performance,

which can either strengthen or weaken the influence of shared, task-specific board experience on

behavioral persistence.

Our paper makes several novel contributions to the literature on corporate boards. First,

we examine a critical factor that potentially drives board behavioral repetition: task-specific,

board-member shared experience. Second, given that board members’ shared, task-specific

experience drives the board to repeat past decisions, we examine conditions that attenuate this

relationship, thus suggesting that boards are able to break from repetitive behavioral tendencies.

Third, our findings have clear practical implications for how boards should be structured in a

manner that facilitates information processing and decision making, particularly under

circumstances in which it would likely be beneficial for boards to break from past behavior.

THEORY AND HYPOTHESES

Scholars have posited the existence of two different human information-processing

systems in human reasoning. The first form relies on intuitive processing that is fast, automatic,

and requires only limited cognitive processing capacity (e.g., Kahneman and Frederick, 2007).

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This approach is biased toward judgments similar to ones made based on prior experience, which

is consistent with the notion that individuals often reason based not on assessments of probability

but rather on their judgments of similarity (Sloman, 1996). With such processing, problems are

thought to be contextualized according to how they relate to prior experience, which allows

individuals easy access to prior solutions such as general-rule-based heuristics (e.g., “how-to”

rules; Eisenhardt and Sull, 2001) or specific step-by-step routines (Bingham and Eisenhardt,

2011). In our context of information processing within corporate boards, heuristics provide an

overarching guiding principle or rule (e.g., selecting a CEO from the same origin as the one the

board selected in the prior succession), while routines constitute a specific action sequence (e.g.,

first—retain an executive selection firm, second—describe preferred characteristics for incoming

CEO, third—create a slate of candidates based on selection criteria, etc.). By contrast to the first

intuitive form of information processing, the second form is a more demanding analytic-

inference process that is less influenced by prior experience and that is driven more by

deliberation and formal analysis (Evans, 1984, 1989; Sloman, 1996).

Individuals are subject to limited-capacity attention systems in which they only

selectively attend to stimuli (e.g., Cowan, 1988). Under such conditions, more automatic

processing occurs based on the individual’s familiarity with the stimuli. Research shows that

board members are often exceedingly busy (Mace, 2008), that many serve on multiple boards

(Fich and Shivdasani, 2006), and that they often hold time-intensive positions at their focal firms.

Hence, given such a limited attention capacity and time pressure, board members may be

particularly vulnerable to the use of more automatic cognitive processing. For example, prior

research suggests that board members tend not to address problems in a comprehensive manner,

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to limit their exploration of decision alternatives (Finkelstein and Mooney, 2003), and to

disagree with the CEO only rarely (Schwartz and Weisbach, 2013).

Interestingly, research also indicates that processes that first require high amounts of

attention become more automatic with repeated experience (Shiffin and Schneider, 1977). Such

automatic information processing has been shown to be highly effective under many conditions,

particularly ones that are similar to prior experience. In our context, then, board CEO selection

processes that were once more deliberate may become more automatic with repetition. The

benefits of such experience-based information processing include effort reduction and decision

simplicity. However, if such an approach has served well in the past, it becomes harder to

dislodge, based on past efficiency (Evans and Over, 1996). Thus, heuristic- and routine-based

reasoning that tends to become more ingrained with behavioral repetition may lead to problems

as reasoning tasks become more elaborate and situations differ significantly from prior

experience (Kahneman, 2000; Sloman, 1996).

In contrast to a heuristic- or routine-based approach, an analytical approach is considered

to be more thoughtful and deliberative, but also more cognitive effort-intensive. Analytical

processing relies less on context and instead attempts to examine underlying causes and

principles (Stanovich and West, 2000). This form of analytical processing places greater

demands on an individual’s working memory system. Yet, in more complex decision making—

for example, in environments in which firm performance tends to fluctuate significantly—

analytical systems may be preferred over more heuristic- or routine-based approaches because

similarities to past situations either may not exist or are only superficially similar. Under such

complex decision making, better solutions are reached if more effortful processes override more

rule- or step-based methods—and these analytical processes become more likely when decision

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makers believe that they incur a penalty or cost for using heuristic- or routine-based processes

(Sloman, 1996). Thus, complex situations that board members typically face often need abstract

thought in which similarity to other contexts is overridden and more analytical, abstract

reasoning becomes more optimal.

Heuristic- and routine-based reasoning methods, then, draw on prior contexts and apply

experience to situations perceived as similar, resulting in recurring patterns of action, which

reflect the experience of organization members relative to a particular task (Nelson and Winter,

1982). However, it is important that such experience-based reasoning, when established, is

subject to inertial pressures (e.g., Szulanski, 1996). The organizational literature offers ample

evidence that the more familiar an organization’s members become with a particular strategic

action, the more likely it is that they repeat it (e.g., Amburgey, Kelly, and Barnett, 1993; Gulati,

1995; Shaver, Mitchell, and Yeung, 1997). However, frequently repeated action sequences can

lead to suboptimal decisions and hinder performance when they are applied automatically to

dissimilar situations (Cohen and Bacdayan, 1994). Although heuristics and routines are difficult

to observe in organizations, they can be inferred from an observed sequence of behavior

(Barkema and Vermeulen, 1998). We first examine a likely condition under which boards are

prone to repeat past succession behaviors. Then, after establishing behavioral repetition, we

explore factors that contribute to boards breaking away from such repetitive behavior patterns.

We argue that repeating past behavior implies board heuristics and routines, while breaking away

from behavior patterns suggests that such experience-based reasoning is weakening, and that the

board is engaged in more analytical, context-specific deliberative information processes.

Behavioral Persistence: The Effect of Shared, Task-Specific Experience

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We anticipate that collaboration experience on a specific task among board members will lead to

actions consistent with the application of heuristics and routines, leading to recurring patterns of

behavior. Board members bring specific expertise to the group and are expected to share

information so that the board can jointly perform effectively as a group. In the decision-making

process, shared experienced on a specific task among board members has been shown to

facilitate formal and informal transfer of learning, coordination of operations, and control of

consistency (Baum, Li, and Usher, 2000). By working on assigned tasks together, group

members establish specific behavior patterns that embody the learning, capabilities, beliefs,

values, and memories of its decision makers (Nelson and Winter, 1982). Because heuristic- and

routine-based reasoning encode organizational capabilities and knowledge, they are seen as a key

component of organizational learning (Levitt and March, 1988; March, 1991; Argote, 1999), and

they are conceptualized as a way to store knowledge and capabilities (Feldman and Pentland,

2003). Importantly, once a pattern or direction of organizational action is initiated it may persist

and become subject to inertial pressures (i.e., resistant to change) (Starbuck, 1983).

Consistent with experience-based behavioral persistence, we expect that shared, task-

specific experience drives CEO origin similarity in selection in such a way that boards with

significant shared, task-specific experience in hiring a prior CEO will hire a new CEO of the

same type as they had previously hired. Board shared, task-specific experience results from

board members who have had experience working together on a specific task. In our context,

shared, task-specific experience refers to prior firm specific experience that board members have

had in selecting a CEO at the focal firm. Shared, task-specific experience likely leads to

heuristics and routines that may lead to group-level mutual knowledge based on the members’

firsthand understanding of one another’s expertise and the face-to-face interactional dynamics

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among the board members (Cramton, 2001). Such experience creates a common understanding

(Tian, Haleblian, and Rajagopalan, 2011), but it can also lead to heuristics and routines that have

been shown to lead, in turn, to inertial behavior (Hannan and Freeman, 1984). Hence, we expect

that shared, task-specific experience contributes to mutual board knowledge—defined as

information shared by all of a group’s members, coupled with the awareness that all others in the

group share the information (Cramton, 2001). Since experience-based behavior such as heuristics

and routines draw upon prior contexts and apply knowledge to situations perceived as being

similar, we fully expect that this mutual board knowledge increases the likelihood that once

shared, task-specific, experience-based behavior is established, current decisions will likely be

consistent with prior decisions perceived as similar. Thus, we make the following baseline

hypothesis:

Hypothesis 1: Board member shared, task-specific experience will be positively

related to the likelihood of hiring a new CEO whose origin—e.g., insider or

outsider—is the same as that of the prior CEO.

Breaking from Past Behavior: The Effects of Board Composition and Performance Factors

Given that we expect board members’ shared, task-specific experience will increase the

likelihood of board repetitive behaviors, we focus our interests in the following hypotheses on

the less-obvious question of which factors disrupt such repetitive board behavior. Specifically,

we are interested in whether increased knowledge diversity within the board likely contributes to

an increased variety of viewpoints and perspectives on the board that may in turn contribute to

the questioning of and ultimately the breaking away from behavioral repetition. In addition to the

compositional diversity of the board, we also expect firm-level performance factors—

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performance volatility and overall financial performance—to influence board behavioral

repetition.

Board Intra-Firm General Experience Diversity Disrupts Repetitive Behavior

Within the management literature on groups, an information-processing perspective has posited

that potential group insight and productivity are enhanced as groups have access to a greater

diversity of general knowledge, opinions, skills, and abilities, which then give the group access

to a greater range of perspectives that can be brought to bear on a problem (Haleblian and

Finkelstein, 1993). This gives diverse groups a larger pool of resources that may be helpful in

dealing with uncommon problems. Such diverse groups may take longer to reach consensus, but

they may also be more comprehensive in their decision making (Nadolska and Barkema,

forthcoming). Such diversity may also set the stage for more cross-fertilization of ideas (van der

Vegt and Bunderson, 2005) as the need arises to (1) integrate diverse information and reconcile

different perspectives that can stimulate thinking that is more creative, and (2) prevent groups

from moving to premature consensus on issues that need careful consideration. Hence, diverse

teams may be ones that are more reticent to simply repeat past behavior.

We examine general experience diversity, which results from a collection of individuals

who have had differing levels of tenure working for the focal firm (Penrose, 1959). We posit that

intra-firm general experience diversity may encourage group-level differential ideas that

unfreeze tendencies toward behavioral persistence. Such diverse experience runs against a

common understanding (Tian et al., 2011) and may help break inertial behavior (Hannan and

Freeman, 1984). Thus, we expect that intra-firm general-experience diversity will contribute to

more varied information being shared by the board’s members. While board members’ shared,

task-specific experience fosters the routine-based decision-making approach, their knowledge

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diversity attenuates the tendency of repetitive decision making and leaves open the possibility

that current decisions break from prior decisions. Thus, we hypothesize that intra-firm general-

experience diversity limits behavioral persistence in such a way that a positive relationship

between board member overlap and CEO origin similarity will decrease as intra-firm general

experience diversity increases as stated in the following hypothesis:

Hypothesis 2: The positive relationship between board members' shared, task-

specific experience and the likelihood of hiring a new CEO whose origin is the same

as the origin of the prior CEO will weaken as intra-firm general-experience diversity

increases.

Board Inter-Firm Experience Diversity Disrupts Repetitive Behavior

Based on a similar logic regarding why intra-firm board-experience diversity might attenuate the

effect of board shared, task-specific experience on behavioral persistence, we argue that diverse

extra-firm experience of board members might also have a similar impact. Director interlocks are

a source of information about business practices at other firms (Davis, 1991; Haunschild, 1993;

Mizruchi, 1996). A board interlock is created between firms when a director at one firm joins the

board of another (Burt, 1980; Mizruchi, 1996), and such interlocks are channels of information

and communication across firms (Haunschild, 1993).If such an interlock exists, a firm can gain

an inexpensive but effective form of "business scan" (Useem, 1984) that may influence focal-

firm heuristics and routines. Organizations attend to comparable organizations' visible actions for

clues about how to interpret their own situations and possible courses of action (Haunschild and

Miner, 1997). Directors bring knowledge to the board from their networks (Davis, 1996), and

this knowledge directs attention to new practices and facilitates the transmission of information.

Networks are a potential source of learning (e.g., Levitt and March, 1988; Powell, 1990; Uzzi,

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1996) that promotes efficient skill transfer among firms (Hamel, 1991) and produces novel

syntheses of existing information (Powell, Koput, and Smith-Doerr, 1996; Stuart and Podolny,

1997). Faced with limited information from their own experience, organizations can use others’

experiences to compensate for their own deficit in understanding (Baum et al., 2000; Henisz and

Delios, 2001; Kraatz, 1998).

Along these lines, we argue that as board members access more distinct, diverse, and

relevant experience available to them from their experience as directors on other boards, they

will directly increase the information and knowledge diversity of the focal board. Similar to the

logic of the previous hypothesis on intra-firm experience diversity, we would also expect that

knowledge and information from diverse inter-firm experience will give the group different

perspectives, as well as more comprehensiveness and deliberateness in its decision making.

Hence, we expect that extra-firm experience of board members will attenuate the tendency that

information processing be based on prior task-specific experience in CEO selection, which leads

to the following hypothesis:

Hypothesis 3: The positive relationship between board members' shared, task-specific

experience and the likelihood of hiring a new CEO whose origin is the same as that of the

prior CEO will weaken as board members' external network ties increase.

Volatile Firm Performance Disrupts Repetitive Behavior

There are obvious costs in terms of time and effort associated with analytical information

processing, which requires a high degree of deliberation. Heuristic- and routine-based reasoning

are much more efficient forms of information processing in that they tend to arise in recurring

situations. For instance, heuristics and routines are constructed in such a manner that decision

makers can store organizational experience and transfer it to new situations relatively simply. In

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addition, heuristics and routines work optimally in situations that are similar to current or past

situations (Cohen and Bacdayan, 1994; Bingham and Eisenhardt, 2011), but when they are

applied to dissimilar situations, performance can suffer (Haleblian and Finkelstein, 1999).

When firm performance is volatile, deliberative information processing may be more

appropriate than heuristic- or routine-based information processing. As volatility increases, it

becomes more difficult for decision makers to assign accurate probabilities to future events

(Milliken, 1987). As unpredictability increases, firms often gather more information (Kren, 1992;

Leblebici and Salancik, 1981) in order to address changing environments. Under such conditions

of unpredictability, we would expect that heuristics and routines associated with shared

experience would become less relevant and less likely to be associated with behavioral repetition

in the context of CEO selection. Hence, volatile environments make existing understanding of

prior cause-effect relationships less relevant and challenge the appropriateness of maintaining

behavioral persistence (Dess, Lumpkin, and Covin, 1997). As a result, we expect board

structures that are more associated with repetitive behavior, such as those having significant

shared, task-specific experience, will be less likely to rely on routine- and heuristic-based

information processing as volatility and uncertainty increase. Accordingly, we hypothesize as

follows:

Hypothesis 4: The positive relationship between board members' shared, task-specific

experience and the likelihood of hiring a new CEO whose origin is the same as the origin

of the prior CEO will weaken as firm performance volatility increases.

Performance Feedback and Its Influence on Repetitive Behavior

While shared, task-specific experience plays a critical role in fostering a routine-based approach

in decision making, it is less clear how performance affects the shared-experience effect on

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repetitive behavior. Performance can be a significant signal that stimulates board members to

recognize the need or slack and to challenge the status quo. Inertia arguments are consistent with

the notion that strong performance strengthens board repetitive behavior. In contrast, a concept

that we develop—“cognitive slack”—is more consistent with the expectation that strong

performance will weaken board repetitive behavior.

Strong performance facilitates repetitive behavior. In successful organizations,

managerial behavior is frequently biased in favor of what seems to work (Levitt and March, 1988;

March, 1991). Given initial success with an activity, organizations are likely to repeat this

activity because it is less risky and more rewarding to repeat a successful action than to try

alternatives with which they have limited experience (Levitt and March, 1988). Heuristics and

routines reflect experiential knowledge in that they are the outcomes of learning from prior

behavior (Gavetti and Leventhal, 2004). Decision makers repeat seemingly successful

organizational actions, reflect on the outcomes, and then revise their understanding and/or action

as needed (Haunschild and Sullivan, 2002).

Knowledge accumulates in part as a result of positive reinforcement that follows from

prior choices (Levitt and March, 1988). Such positive reinforcement may buttress the belief that

board members’ shared, task-specific experience has resulted in positive outcomes and that it can

be relied upon in subsequent decision making. For example, boards that have made successful

CEO hires in the past are less likely to question the routine-based approach based upon prior

experience because this approach seems to be effective. In contrast, poor performance may

result in questioning of whether the shared, task-specific experience is still effective. Thus, we

hypothesize the following:

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Hypothesis 5a: The positive relationship between board members' shared, task-specific

experience and the likelihood of hiring a new CEO whose origin is the same as the origin

of the prior CEO will weaken as firm performance deteriorates.

Strong performance limits repetitive behavior. At the same time, it seems equally

plausible that strong performance has the potential to limit persistent behavior. As previously

described, heuristics and routines rely on an automatic form of thinking that puts less strain on

cognitive processing and allows the user to sift through and deal with greater amounts of

information. We argue that strong performance may also be related to limiting persistent

behavior, and as such we posit that strong performance is associated with board-level “cognitive

slack” that affords board members extra time and resources. Given more time and resources to

process information, boards may opt to engage in more deliberative and analytical information

processing. Also, since performance is strong, such boards are under less pressure to move

quickly, and as a result they may be more complete, comprehensive, and deliberative in their

information processing. In addition, boards overseeing firms with strong performance may have

greater resources at their disposal, which allow them to innovate without risk of seriously

jeopardizing the firm. This notion of cognitive slack is consistent with the finding that financial

slack and prior organizational performance are positively associated with organizational

exploration activities (Lubatkin, Simsek, Ling, and Viega, 2004). Thus, we also posit that

cognitive slack that derives from strong performance may allow board members to experiment,

innovate, and make decisions that deviate from past ones.

The negative moderating effect of good performance, by which behavioral persistence is

weakened, is also consistent with threat-rigidity theory, according to which poor performance

amplifies behavioral persistence. When the organization finds itself in a threatening situation—

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such as when organizational performance is poor—individuals within the organization may

exhibit their most well learned response (Staw, Sandelands, and Dutton, 1981). Consistent with

the notion of “threat-rigidity,” simplified cognitive processing may convince boards to fall back

on behavioral persistence. Overall, then, a competing hypothesis also seems plausible, in which

poor performance amplifies behavioral persistence, while strong performance allows for

cognitive slack that limits such persistence. These arguments, in sum, lead to our final hypothesis,

as follows:

Hypothesis 5b: The positive relationship between board members' shared, task-specific

experience and the likelihood of hiring a new CEO whose origin is the same as the origin

of the prior CEO will weaken as firm performance improves.

METHOD

Data and Sample

The sample for this study consisted of publicly traded U.S. manufacturing firms that made two or

more new CEO appointment announcements between 1996 and 2013. Consistent with prior

studies (e.g., Tian et al., 2011; Zhang and Rajagopalan, 2010), we limited the sample to large

firms (annual revenues greater than $50 million) and non-diversified firms (70% or more of sales

from a single 4-digit industry) that were listed continuously on COMPUSTAT. We classified

firms by industry using the four-digit Standard Industrial Classification (SIC) codes.

We identified CEO successions by drawing on executive information in proxy statements

and by using CEO appointment announcement information collected from media reports such as

the Wall Street Journal’s (WSJ’s) “Who’s News” and “What’s News” columns. As described

below under “Measures,” we used the stock price volatility for one year prior to a CEO

succession announcement and the total shareholder returns for two years prior to the CEO

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succession year, which meant that we included firms for which stock price data were available

for those variables. From these data sources, our final sample included 266 CEO successions that

took place within 188 firms.1 T-tests revealed no difference in mean firm size (annual sales) and

firm performance (industry-adjusted return on assets, or ROA) between these firms on the one

hand and the other firms in the broader population of 725 firms from which the final sample was

drawn on the other hand (Zhang and Rajagopalan, 2003).2

Measures

Dependent Variable

CEO Origin Similarity. We assessed whether the new CEO's origin was the same as that

of the outgoing CEO based on the following procedure. First, for each new CEO selection in our

sample, we classified the prior and focal selections as either an internal or an external succession.

Consistent with prior studies (e.g., Zhang and Rajagopalan, 2003), we classified a succession as

internal when an executive with firm tenure of at least two years had been promoted to the

position of CEO of the firm and as an external succession otherwise. Second, if the prior and the

focal successions were either both internal or both external, we coded CEO origin similarity as 1;

otherwise we coded the variable as 0.

Independent Variable

Shared, Task-Specific Experience. To measure board members’ shared, task-specific

experience, we identified current board members who had also served on the board at the time of

1 As noted later, we first estimated a first-stage model to deal with selection bias. These first-stage models estimated the

likelihood of the succession and had a larger sample because they included all years that a firm was at risk of having a succession.

The reduced final sample of 266 successions refers to the second-stage models used to test the research hypotheses, where the

dependent variable was CEO origin similarity and not the likelihood of the succession event. 2 The total population consisted of 725 firms. Of the 725 firms, 188 firms experienced more than one CEO succession during the

study period. The T-test for firm size (measured by annual sales) of the 188 firms within the final sample (Mean = 4,325.41, s.d.

= 14,079.3) and of the 537 firms outside the final sample (Mean = 3,430.07, s.d. = 10,888.1) showed no significant difference

between groups: t-score = 0.85 (p = 0.36). The T-test for firm performance (measured by industry-adjusted ROA) of the 188

firms within the final sample (Mean = 1.17, s.d. = 5.92) and the 537 firms outside the final sample (Mean = 0.99, s.d. = 3.42) also

showed no significant difference between groups: t-score = 0.42 (p = 0.62).

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the hiring of the prior CEO of the focal firm. In other words, we used this measure of board-

member overlap between two successive CEO selection decisions as a proxy for shared, task-

specific experience. This variable was measured by the number of board members who

participated in the prior succession decision divided by the total number of board members in the

focal succession. We confirmed information on board members who actually participated in the

CEO selection decisions based on the date of the CEO appointment announcements and the

beginning dates of directorship. This approach allowed us to capture actual task-specific, co-

working experience of board members.

Moderator Variables

General board co-working experience diversity. We defined general board co-working

experience diversity in terms of the tenure difference between an individual and all other

members on the board. Consistent with prior studies, we measured general board co-working

experience diversity based on Tsui, Egan, and O’Reilly’s (1992) formula: √1

𝑛∑ (𝑆𝑖 − 𝑆𝑗)2𝑛𝑗=1 .

This diversity measure is the square root of the summed squared differences between board

member Si’s board tenure and the board tenure of every other board member Sj, divided by the

number of board members. Increasing values of this measure suggest greater co-working

experience diversity.

Board external network ties. We examined board members’ director interlocks because

their experiences from other organizations potentially could stimulate the group to break from

routines. Specifically, we measured board external network ties by summing all other board

memberships of the focal firm's board members.

Firm performance volatility. We measured firm performance volatility by computing the

standard deviation of daily returns for two years before the CEO appointment announcements

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(e.g., Grullon, Kanatas, and Weston, 2004). This measure is generally used as a measure of

performance risk in the finance literature. In addition, stock price variation is very relevant to

information processing because price movements are primarily caused by the new information

and the process that assimilates this information into market prices (Andersen, 1996). Therefore,

the board of directors will seriously consider the stock return volatility prior to a crucial decision

like new CEO selection. Data were collected from CRSP.3

Firm performance. We suggested competing hypotheses regarding the moderating effect

of firm performance on the relationship between shared, task-specific experience and CEO origin

similarity. While accounting-based earnings measures such as return on assets (ROA) are

backward-looking and pertain to short-term operational firm performance, shareholder return is a

function of expected long-term discounted cash flows (Nyberg, Fulmer, Gerhart, and Carpenter,

2010). From the perspective of the board of directors, both measures are critical indicators.

Hence, we used two measures of firm performance—annual ROA of the focal firm in the year

prior to the current succession and total shareholder return for two years prior to the current CEO

succession. In line with the existing literature (e.g., Rowley, Behrens, and Krackhardt, 2000),

ROA was calculated by dividing net income by total assets of firms and Shareholder return was

calculated as the fiscal year return to shareholders, including stock price appreciation and

dividends (Nyberg et al., 2010). Data on ROA and total shareholder return were collected from

COMPUSTAT.

Control Variables

To rule out possible confounding factors that may affect the CEO origin similarity, we

controlled for firm-specific, board-specific, and CEO-specific variables that have been examined

in prior work on CEO succession.

3 Center for Research in Security Prices.

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Firm and board characteristics. Firm size was operationalized as the logarithm of total

assets. We expected the positive relationship between firm size and CEO origin similarity that

we found because larger firms may be more prone to inertial routines (Hannan and Freeman,

1984). Not only firm size but also board size may affect the formation of organizational routines

and institutionalized actions (Ocasio, 1999). Board size was measured as the total number of

directors on the board. Board independence, which was measured as the proportion of outside

directors to total number of directors (Desender, Aguilera, Crespi, and GarcÍa-cestona, 2013),

may also affect new CEO origin because insider-dominant boards are more likely to hire an

internal CEO (Zhang and Rajagopalan, 2003).

CEO characteristics. We controlled for the characteristics of outgoing (previous) and

incoming (new) CEOs. The ages of both CEOs were measured by counting the years since they

were born. To control for the effect of new-CEO social capital on succession type, we included

new CEO external directorships, measured as the number of external directorships held by the

new CEO. Ocasio (1999) demonstrated the effect of prevailing rules and precedents of insider vs.

outsider CEO succession on subsequent CEO succession. Hence, we controlled for the effect of

previous succession type, which was coded 1 if the previous succession was an inside succession

and 0 otherwise. We also controlled for previous CEO tenure by counting the years since the

previous CEO was appointed to the CEO position. In addition, we controlled for previous CEO

disposition, in which 1 represented routine departures and 0 represented non-routine departures.

Following previous studies (Cannella and Lubatkin, 1993; Huson, Malatesta and Parrino, 2004;

Tian et al., 2011), routine departures included two types of successions: (1) relay successions, in

which an “heir apparent” succeeded to the CEO position; and (2) retirement of the previous CEO.

Non-routine departures included (1) voluntary resignation, (2) dismissal, and (3) death or health

21

problems. Previous CEO disposition was coded based on the Wall Street Journal, company press

releases, and corporate proxy statements.

Finally, we control for unobserved heterogeneity from industry effects by

including industry-fixed effects.

Analysis

We estimated the likelihood of CEO origin similarity using a logit model because, as described

above, our dependent variable is binary. Because firms in the sample may have multiple CEO

successions, we adjusted for the resulting non-independence of observations by clustering

standard errors at the firm level (Wooldridge, 2003). We tested the hypothesized effects of the

independent variable and moderators on CEO origin similarity based on a two-stage Heckman

model (Heckman, 1979) to correct for the selection bias caused by the fact that CEO origin

similarity is observed only when firms experience a succession event. The two-stage approach

estimates the likelihood of CEO succession in the first stage, and in the second stage it estimates

the likelihood of CEO origin similarity, including the inverse Mills ratio generated from the first

stage. In the first stage, following prior studies (e.g., Zajac and Westphal, 1996), we predicted

the likelihood of CEO succession based on industry-adjusted stock-market performance (excess

return), firm performance (ROA), firm size (logged revenues), the length of the prior interval

between successions (i.e., the outgoing CEO’s predecessor’s tenure), the length of time since the

prior succession (i.e., the outgoing CEO’s tenure), and the number of prior successions observed

during the time period (cf., Amburgey et al., 1993; Mizruchi and Stearns, 1988).4 The first-stage

model (sample size = 1,497 firm years because the probability of succession is observed at the

firm-year unit of analysis) was estimated with a probit analysis that assumes that the error term

4 This model takes the following form: successiont = b0 + b1excess returnt-1 + b2ROAt-2 + b3firm sizet-1 + b4length

prior internalt-1 + b5time since eventt-1 + b6number of prior eventst-1 + ut.

22

follows a standard normal distribution (Heckman, 1979). In the second-stage regressions, we

included the inverse Mills ratio generated from the first-stage model. The second stage-logistic

models had a sample size of 266 successions because we only included the years of the focal

succession.

RESULTS

Table 1 includes descriptive statistics and pairwise correlations for the variables used in the

analysis. In our sample, 59% of new CEO origins were the same as the origin of their

predecessors. While explanatory and control variables have low correlations, we found high

correlations between firm size and board size (0.59) and between board member overlap and

previous CEO tenure (-0.62). We ran additional analyses without including these controls and

the results were consistent with the reported results.

Table 2 presents the results of the second-stage logistic regression models for CEO origin

similarity. Model 1 included the control variables only, and Model 2 included the main effect for

the shared, task-specific experience variable. Models 3–7 added interaction terms corresponding

to each of the hypothesized moderating effects on Model 2. The moderating variables were

mean-centered prior to creating the interaction terms to deal with the issue of potential

multicolinearity between the main effect and the moderating effects (Aiken and West, 1991).

Finally, Model 8 included all of the hypothesized effects in order to examine the stability of the

individual effects in an all-inclusive specification.

[Insert Tables 1 and 2 about here.]

Likelihood of Hiring a New CEO Whose Origin is the Same as That of the Prior CEO

Hypothesis 1 predicted a positive effect of shared, task-specific experience on CEO

origin similarity. In Model 1, the likelihood of the CEO origin similarity was predicted by the

23

control variables only. In Model 2 we added the shared, task-specific experience variable to test

Hypothesis 1. The incremental variance explained by Model 2 over Model 1 was significant (χ2 =

4.61, p < 0.05). More specifically, consistent with our prediction, the logistic regression

coefficient for shared, task-specific experience is positive and significant (β = 1.660, p < 0.05),

which suggests that a greater level of shared, task-specific experience increased the likelihood of

CEO origin similarity. To examine the economic significance, we calculated how increasing and

decreasing shared, task-specific experience changed the likelihood of CEO origin similarity. In

our sample, the mean of board size was 8.8, and the mean of shared, task-specific experience was

0.59. Therefore, on average, approximately five out of nine board members had shared, task-

specific experience in the CEO selection decision. As a marginal effect, we calculated the

incremental change in the likelihood of CEO origin similarity by adding or dropping one

additional board member with shared, task-specific experience. Holding other factors consistent,

increasing shared, task-specific experience by one more board member from its mean value

increased the likelihood of CEO origin similarity by 14.2%, and decreasing shared, task-specific

experience by one board member from its mean value decreased the likelihood by 13.4%.

Moderating Effects

Hypothesis 2 predicted a moderating effect of board co-working experience diversity on

the relationship between shared, task-specific experience and CEO origin similarity. Consistent

with Hypothesis 2, the coefficient for the interaction between shared, task-specific experience

and board co-working experience diversity was negative and significant (β = -0.222, p < 0.01) in

Model 3. The incremental variance explained by Model 3 over Model 2 was significant (χ2 =

7.45, p < 0.01), which suggests that greater board co-working experience diversity attenuates the

relationship between shared, task-specific experience and CEO origin similarity. In Hypothesis 3,

24

we predicted a negative moderating effect of board members’ external network ties on the main

effect. Consistent with that prediction, the coefficient for the interaction between shared, task-

specific experience and external network ties was negative and significant (β = -0.209, p < 0.01)

in Model 4. The incremental variance explained by Model 4 over Model 2 was significant (χ2 =

4.68, p < 0.05).

Hypothesis 4 also predicted a negative moderating effect of firm performance volatility

on the main effect. Model 5 shows that the coefficient for the interaction between shared, task-

specific experience and firm performance volatility was negative and significant (β = -0.047, p <

0.05), and the incremental variance explained by Model 5 over Model 2 was significant (χ2 =

5.08, p < 0.05). We tested Hypotheses 5a and 5b using two variables: ROA and TSR. Models 6

and 7 show that the coefficient for the relevant interactions was negative and marginally

significant for ROA (β = -8.844, p < 0.10) and significant for TSR (β = -0.093, p < 0.05). The

incremental variances explained by Models 6 and 7 over Model 2 were significant (χ2 = 4.42, p <

0.05 and χ2 = 3.85, p < 0.05, respectively). Therefore, our results support Hypothesis 5b instead

of Hypothesis 5a. The combined model (Model 8) shows that these effects were stable when all

variables were included in the same model. The incremental variance explained by the full model

over the main-effects-only model substantially increased (χ2 = 34.54, p < 0.001).

Interpretations of moderating effects in non-linear models such as logistic regressions are

not straightforward (Shaver, 2007). In particular, because our explanatory variables are

continuous, the interpretations of interaction terms are more complicated than those of binary

variables. We computed the marginal effect of changes in the independent variable on the change

of the dependent variable (the likelihood of CEO origin similarity) at two levels of the relevant

moderator variables—one standard deviation above and one standard deviation below the mean.

25

First, we found that increasing shared, task-specific experience by one more board member at the

mean resulted in an increase in the likelihood of CEO origin similarity by 21.4% for low levels

of board member general co-working experience diversity (one standard deviation below the

mean), yet that same increase in the shared, task-specific experience resulted in a decrease in the

likelihood of CEO origin similarity by 11.6% for high levels of board member general co-

working experience diversity (one standard deviation above the mean). Similarly, one additional

board member who had shared, task-specific experience at the mean increased the likelihood of

CEO origin similarity by 31.7 % for low levels of board-member external network ties, but it

increased the likelihood of CEO origin similarity by only 5.4 % for high levels of board-member

external network ties. For firm performance, one additional board member who had shared, task-

specific experience at the mean increased the likelihood of CEO origin similarity by 73.5 % for

low levels of firm performance measured by ROA, but it increased the likelihood of CEO origin

similarity by 0.2% for high levels of firm performance. The results were consistent with firm

performance measured by TSR (49.4% increase for low levels and 21.8% increase for high

levels).

Robustness Tests

In our sample, the average percentage of inside directors on a board was 13 (mean

of board independence = 0.87). Although inside directors are, by and large, relatively few,

they may have systematically different influences on CEO selections compared with

outside directors because inside directors are subject to different pressures from those of

outside directors, have different knowledge of the firm relative to outside directors, and

may prefer inside succession to preserve the status quo. To address this issue, we

conducted additional robustness tests and estimated all the models reported in Table 2

26

based on measures constructed with outside (independent) directors only. The results

remained robust with these alternative measures (not reported due to space constraints but

available from the authors upon request), and the levels and direction of statistical

significance remained unaltered.

DISCUSSION

We focused on board behavioral repetition as well as factors that disrupt such behavioral

repetition in the context of CEO selection decisions. We found that shared, task-specific

experience of board members is associated with behavioral persistence in which working

together on a prior CEO selection results in similar decisions on subsequent selections. This

finding suggests that overlapping board membership contributes to heuristics and routines, which

reflects a less time-consuming and more intuitive information-processing approach. We were

also interested in conditions that may provoke the board of directors to break from behavioral

repetition, which implies greater board deliberation in decision making. We posited and found

that both intra- and inter-board knowledge diversity trigger a break in behavioral persistence.

These findings suggest that a broader range of internal and external viewpoints on a board lead to

a greater number of ideas and enhanced comprehensiveness in decision making (Cox, 1993;

Jackson, May, and Whitney, 1995; Nadolska and Barkema, forthcoming). In addition, we

hypothesized and found that performance volatility contributes to a break from behavioral

repetition, which suggests that shifting environments are perceived by boards as requiring

adaptation and change. Finally, we explored the influence of prior firm performance, and we

found that strong performance leads to a break from persistent actions, which suggests that

“cognitive slack” within the board—additional time and resources to participate in more

deliberative thinking—contributes to a break from heuristics-based behavior.

27

Theoretical Contributions

Board members have often been criticized for being beholden to the CEO and for rarely resisting

his or her decisions (e.g., Schwartz and Weisbach, 2013; Johnson, Daily, and Ellstrand, 1996).

Thus, it was widely believed that board independence would solve the problem of ineffective

board members because outside board members would be more effective monitors of the firm

than inside ones (Mace, 1971; Finkelstein, Hambrick, and Cannella, 2008). However, it has also

become evident that even after most firms have moved strongly in the direction of appointing a

majority of outside board members such boards have not been linked to effective monitoring

(Finkelstein and Mooney, 2003). Clearly, then, we need to better understand the conditions under

which board processes are effective, and when they are not. An underlying assumption behind

the notion that outside board members are more effective monitors is that shareholder interests

are best protected when board members carefully deliberate over and process information

(Taylor, 2010). Hence, exploring the information-processing approaches of boards may improve

our understanding of board effectiveness as boards not only need independent members but also

need these members to be fully engaged in decision making.

Our findings may also contribute to a better understanding of the manner in which boards

process information. Since board members typically have to evaluate extensive amounts of

information (Fich and Shivdasani, 2006), it would certainly seem plausible that they would use

heuristics and routines to facilitate decision making, particularly given the time constraints that

they face. Despite the efficiency of the approach, repetition of prior experience may have

negative effects, especially in changing environments (Cohen and Bacdayan, 1994). Although

we find evidence consistent with intuitive decision processes, we also find evidence suggestive

of deliberative processes—broadly implying that board members may alternate between

28

information processing modes. Upon reflection, these information-processing modes appear be

analogous to the organizational learning ideas of exploitation and exploration (March, 1991).

More specifically, individuals within organizations are capable of repeating sequences,

which is consistent not only with routines but also with the exploitation of old possibilities. In

addition, we find evidence that boards regularly break from behavioral patterns, which suggests

not only deliberation but also the exploration of new possibilities. Thus, our study suggests

parallels between organizational-learning and board-learning processes.

We also contribute to the CEO selection literature by developing and testing more

nuanced theoretical arguments on the antecedents of new CEO origin. The prior CEO selection

literature has focused on the inertial effects of firm size and past performance in predicting new

CEO origin (e.g., Pferrer and Salanckik, 1997; Parrino, 1997; Zhang and Rajagopalan, 2004). In

contrast to these firm-level effects, our study identifies a key but previously unexplored source of

group-level path dependence: board shared experience in prior CEO selections. In addition,

although scholars have begun to examine how CEO selection decisions reflect prior experiences

of the board (e.g., Tian et al., 2011), we extend this literature since we go beyond simply

demonstrating that prior experiences with other board members lead to behavioral persistence.

Specifically, we identify board diversity and firm performance as factors that motivate boards to

choose a new CEO with a different origin. Thus, we reveal factors that both contribute to and

limit board behavioral persistence.

Practical Implications

Our findings also have important implications for how to structure boards in order to facilitate

more deliberative decision making. Our results are consistent with prior work that has shown a

tendency for repetition in board decisions, in which past reliance on a certain type of succession

29

(e.g., inside vs. outside) increases the likelihood of the same type of CEO origin for subsequent

CEO successions (Ocasio, 1999). Board members’ shared experience in a specific task likely

enables them to better understand the issues their organization faces and allows them to

implement available solutions that draw on heuristic- and routine-based reasoning that derives

from a common experience. With such shared experience, however, routine-based processes may

discourage deliberation that would likely facilitate better decision making.

The practical challenge, then, is to motivate boards to engage in greater deliberation,

particularly in more dynamic settings, in order to better meet their fiduciary responsibility toward

shareholders. There appears to be a clear trade-off in that greater shared firm tenure can lead to

timely decision making, as board members know how to efficiently work together. However,

such shared tenure can breed heuristics and routines that, while often functional, may become

dysfunctional, especially in changing contexts that render pre-existing routines irrelevant or

obsolete. From a practical standpoint, this implies a crucial balance between board stability and

board deliberation. As overlapping tenure increases, the board may be more stable and efficient

in its decision processes (e.g., Weick, 1969; Katz, 1982). Yet, such a board composition may

result in the board members falling back on past routines and continuing past behavior, even

when the context may call for them to depart from such routines and explore more novel options.

Our findings suggest that breaking from routines is most likely when boards have access to

diverse information and when performance conditions are either volatile, driving the need for

change, or strong, allowing for more opportunities. Practically speaking, then, relevant

stakeholders such as CEOs or key block holders may be able to structure boards in a manner that

increases deliberation and enhances decision making.

30

From the broader perspective of corporate governance, our findings cast boards in a more

favorable light as compared with depictions of boards as passive and complacent groups when it

comes to crucial strategic decisions (cf., Mace, 1971; Herman, 1981). Prior work also suggests

that board members are not comprehensive in problem solving because they limit their

exploration of decision alternatives (Finkelstein and Mooney, 2003). In contrast, we found that

boards do depart from prior norms when the board structure is conducive to building knowledge

diversity; also, boards appear responsive to cues from the firm's past performance in changing

their decision criteria. Taken together, our study is more consistent with a view of boards as

more thoughtful decision-making groups than has often been acknowledged in the prior literature.

Limitations and Directions for Future Research

We have only begun to “scratch the surface” of board cognitions and board learning.

Since our methodological approach was archival, we were only able to infer the presence of

intuitive and deliberate cognitive processes from observed relationships. However, we encourage

future work using alternative methods, such as laboratory studies and interviews based on

qualitative data to directly isolate the specific underlying cognitive and learning processes in the

development of board-level heuristics and routines, as well as the more deliberative processes

that contribute to breaking away from routines. While our study does suggest that both heuristic

and deliberative processes are in play on boards, more work is needed to fully determine the

specific conditions under which each process is dominant.

Second, although we focused on a limited set of moderators in order to permit deeper

theorizing and analysis, there is room to build more complete theories on the conditions under

which firms deviate from routines by examining other contextual factors. This opens up the

avenue for future work on strategic outcomes associated with board cognitive processes. For

31

instance, on the one hand, we could imagine (1) that under more stable conditions heuristic- and

routine-based processes would benefit firm outcomes, particularly when current and prior firm

situations are similar, and (2) that greater deliberation would result in more positive outcomes in

more dynamic environments. However, on the other hand, we could also envision instances in

which greater deliberation would lead to negative outcomes in dynamic contexts since such

information processing increases group conflict created by member diversity (Pelled, Eisenhardt

and Xin, 1999). Broadly speaking, it appears that the exploration of board cognitions and board

learning processes represents an important area to investigate, with a strong potential for both

theoretical and practical implications.

In conclusion, prior empirical work has shown that organizational actors tend to be

inertial in their behavior. Given their time constraints, board members may be particularly

susceptible to using heuristics and routines that lead to behavioral repetition. Our findings

suggest that the shared task experience of board members leads to such repetitive board

behavior. However, it is important for both practical and theoretical reasons to determine the

factors that limit board heuristics and routines in favor of more deliberate and analytical

approaches to decision making. Along these lines, our findings suggest that board knowledge

diversity, strong firm performance, and firm performance volatility suppress inertial tendencies

of board members. Therefore, although scholars have not yet found a simple formula for

effective board governance, the construct of board deliberation shows promise as a crucial

underlying causal mechanism that facilitates board effectiveness.

32

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Table 1. Descriptive Statistics and Correlations (n = 266)

Variables Mean

s.d.

(1)

(2)

(3)

(4)

(5)

(6)

(7)

(1) CEO origin similarity 0.59

0.49

1.00 (2) Shared, task-specific experience 0.59

0.25

0.13 * 1.00

(3) Co-working experience diversity 16.82

9.92

0.15 * 0.10

1.00 (4) Members’ external network ties 7.95

6.33

0.11

0.03

0.15 * 1.00

(5) Firm performance volatility 0.03

0.03

-0.03

0.10

-0.14 * -0.12

1.00 (6) Firm performance: ROA 0.02

0.20

0.13 * -0.03

0.17 * 0.10

-0.20 * 1.00

(7) Firm performance: TSR 0.58

13.01

0.01

-0.11

0.12 * 0.03

-0.06

0.04

1.00

(8) Firm size 7.01

1.80

0.15 * -0.17 * 0.21 * 0.53 * -0.18 * 0.21 * -0.02

(9) Board size 8.81

2.20

0.18 * -0.07

0.48 * 0.56 * -0.20 * 0.19 * 0.12

(10) Board independence 0.87

0.07

0.01

-0.06

0.04

0.20 * -0.07

0.02

-0.03

(11) New CEO age 51.22

7.15

0.13 * 0.04

-0.05

0.05

0.00

0.07

0.03

(12) Previous CEO age 57.10

7.44

0.10

-0.03

0.13 * 0.12

-0.07

0.19 * 0.11

(13) New CEO external directorships 0.32

0.72

0.10

0.05

0.05

0.11

-0.01

0.06

-0.01

(14) Previous succession 0.69

0.46

0.24 * 0.07

0.15 * 0.19 * -0.07

0.00

0.02

(15) Previous CEO tenure 4.90

3.40

0.03

-0.62 * 0.13 * 0.03

-0.10

0.21 * 0.16

(16) Previous CEO disposition 0.49

0.50

0.15 * -0.32 * 0.10

0.19 * -0.11

0.18 * 0.18

Variables (8)

(9)

(10)

(11)

(12)

(13)

(14)

(15)

(16)

(8) Firm size 1.00 (9) Board size 0.59 * 1.00

(10) Board independence 0.26 * 0.21 * 1.00 (11) New CEO age 0.08

0.04

0.07

1.00

(12) Previous CEO age 0.17 * 0.18 * 0.12

-0.05

1.00 (13) New CEO external directorships 0.11

-0.02

0.15 * 0.25 * -0.01

1.00

(14) Previous succession 0.24 * 0.23 * -0.05

0.00

0.10

-0.08

1.00 (15) Previous CEO tenure 0.25 * 0.16 * 0.13 * 0.01

0.21 * -0.09

0.01

1.00

(16) Previous CEO disposition 0.26 * 0.22 * 0.02

-0.13 * 0.54 * -0.02

0.18 * 0.45 * 1.00

* p < 0.05

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Table 2. Logistic Regression Results: Dependent Variable = CEO Selection Type Similaritya,b

(1) (2) (3) (4) (5) (6) (7) (8)

Shared, task-specific experience (H1) 1.660* 4.308*** 1.481* 1.828* 1.549* 1.503† 3.802**

(0.765) (1.301) (0.739) (0.787) (0.788) (0.776) (1.374)

Shared, task-specific experience -0.222** -0.200*

× Co-working experience diversity (H2) (0.084) (0.086)

Shared, task-specific experience -0.209** -0.220*

× Members’ external network ties(H3) (0.077) (0.101)

Shared, task-specific experience -0.047* -0.135***

× Firm performance volatilitya(H4) (0.022) (0.035)

Shared, task-specific experience -8.844† -17.141**

× Firm performance: ROA(H5a&b) (5.353) (5.462)

Shared, task-specific experience -0.093* -0.098*

× Firm performance: TSR(H5a&b) (0.040) (0.046)

Board co-working experience diversity 0.016 0.007 0.025 0.007 0.005 0.012 0.012 0.029

(0.021) (0.022) (0.019) (0.022) (0.022) (0.021) (0.022) (0.021)

Board members’ external network ties -0.018 -0.025 -0.025 -0.018 -0.034 -0.020 -0.029 -0.029

(0.028) (0.030) (0.031) (0.029) (0.030) (0.031) (0.030) (0.035)

Firm performance volatility 2.245 1.285 0.652 0.800 1.509 0.345 1.255 10.108

(4.319) (4.686) (4.905) (5.201) (6.280) (5.493) (4.737) (10.762)

Firm performance (ROA) 1.004 0.771 0.909 0.907 0.725 1.115 0.724 0.903

(0.819) (0.763) (0.776) (0.787) (0.769) (0.888) (0.714) (0.774)

Firm performance (TSR) -0.011 -0.010 -0.009 -0.013 -0.011 -0.011 -0.001 -0.005

(0.011) (0.011) (0.011) (0.011) (0.012) (0.011) (0.012) (0.014)

Firm size 0.079 0.097 0.072 0.081 0.108 0.111 0.108 0.112

(0.125) (0.129) (0.127) (0.130) (0.135) (0.135) (0.127) (0.140)

Board size 0.067 0.092 0.088 0.109 0.087 0.068 0.058 0.043

(0.101) (0.104) (0.109) (0.104) (0.107) (0.105) (0.105) (0.118)

Board independence 0.448 0.084 0.784 0.095 0.377 -0.119 0.597 1.869

(2.418) (2.427) (2.331) (2.471) (2.456) (2.424) (2.426) (2.511)

New CEO age 0.045† 0.043† 0.043† 0.044† 0.047† 0.048† 0.046† 0.056*

(0.023) (0.024) (0.023) (0.024) (0.024) (0.026) (0.024) (0.024)

Previous CEO age 0.008 -0.000 -0.003 0.001 0.001 -0.003 -0.004 -0.004

(0.025) (0.025) (0.026) (0.025) (0.026) (0.025) (0.026) (0.028)

New CEO external directorships 0.331 0.351 0.354 0.389 0.334 0.309 0.343 0.277

(0.340) (0.342) (0.339) (0.347) (0.353) (0.338) (0.352) (0.353)

Previous succession (= 1 if inside) 1.015** 0.968** 1.067** 1.031** 1.015** 1.031** 0.961** 1.350***

(0.319) (0.315) (0.325) (0.323) (0.326) (0.317) (0.318) (0.337)

Previous CEO tenure -0.010 0.058 0.006 0.066 0.068 0.007 0.048 -0.045

(0.066) (0.075) (0.078) (0.078) (0.075) (0.082) (0.075) (0.094)

Previous CEO disposition 0.650† 0.787† 0.957* 0.727† 0.782† 0.905* 0.896* 1.208*

(0.392) (0.408) (0.420) (0.403) (0.431) (0.411) (0.413) (0.477)

Likelihood of Succession 0.295 0.248 0.174 0.382 0.383 0.069 0.354 0.621

(Inverse Mills Ratio) (0.726) (0.712) (0.736) (0.729) (0.714) (0.754) (0.723) (0.838)

Industry Fixed Effect Incl. Incl. Incl. Incl. Incl. Incl. Incl. Incl.

Constant -5.662* -6.300* -8.061** -6.541* -7.008* -5.793† -6.459* -10.070**

(2.850) (2.978) (2.893) (3.107) (3.126) (3.028) (2.978) (3.372)

N 266 266 266 266 266 266 266 266

Pseudo-R2 0.140 0.153 0.174 0.166 0.169 0.165 0.164 0.249

Log Likelihood -154.76 -152.46 -148.73 -150.11 -149.55 -150.25 -150.53 -135.18

LR(χ2)c - 4.61* 7.45** 4.68* 5.08* 4.42* 3.85* 34.54***

aSignificance levels: † p < 0.10, * p < 0.05, ** p < 0.01, *** p < 0.001.

bStandard errors in parentheses. cLikelihood ratio(LR) values test for the increment in the overall model fit after including additional variables. Model 2 is compared with Model 1, and

Models 3–8 are compared with Model 2.

39