Working Paper: NBER ID: w30899
Authors: Paul A. Gompers; Steven N. Kaplan; Vladimir Mukharlyamov
Abstract: Most research on the CEO labor market studies public company CEOs while largely ignoring CEOs in private equity (PE) funded companies. We fill this gap by studying the market for CEOs among U.S. companies purchased by PE firms in large leveraged buyout transactions. 71% of those companies hired new CEOs under PE ownership. More than 75% of the new CEOs are external hires with 67% being complete outsiders. These results are strikingly different from studies of public companies, particularly, Cziraki and Jenter (2022) who find that 72% of new CEOs in S&P 500 companies are internal promotions. The most recent experience of 67% of the outside CEOs was at a public company with almost 50% of external hires having some previous experience at an S&P 500 firm. We estimate the total compensation of buyout CEOs and find that it is much higher than that of CEOs of similarly sized public companies and slightly lower than that of S&P 500 CEOs. Overall, our results suggest that the broader market for CEOs is active and that, at least for PE funded portfolio companies, firm-specific human capital is relatively unimportant.
Keywords: CEO labor market; private equity; executive mobility; compensation
JEL Codes: G24; G3; G32; J30
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| type of firm (private equity) (L26) | characteristics of CEOs hired (M12) |
| CEO characteristics (M12) | firm performance (L25) |
| CEO hiring practices (M12) | CEO compensation (M12) |
| external hires (M51) | hiring pattern compared to public companies (J45) |
| CEO skills transferability (J62) | external hires from public companies (G34) |
| buyout CEOs (G34) | equity investment earnings (G12) |
| performance of companies prior to buyouts (G34) | likelihood of hiring external CEOs (M12) |