Insider versus outsider executive succession: The relationship to hospital efficiency

BACKGROUND:: The relationship between Chief Executive Officer (CEO) succession and hospitals’ competitive performance is an area of interest for health services researchers. Of particular interest is the impact on overall strategic direction and health system performance that results from selecting a CEO from inside the firm as opposed to seeking outside leadership. Empirical work-to-date has yielded mixed results. Much of this variability has been attributed to design flaws; however, in the absence of a clear message from the evidence, the preference for hiring “outsiders” continues to grow. PURPOSE:: This paper investigates on the extent to which insider CEO succession versus outsider succession impacts hospitals’ competitive advantage vis-à-vis a sample of organizations that compete in the same sector. METHODS:: A hospital matching protocol based on propensity scores is used to control for endogeneity and makes comparisons of productivity across organizations through the use of stochastic frontier estimation. FINDINGS:: Succession negatively impacts hospitals’ productivity, and firms with outsider CEO succession events closed the gap toward the competitive advantage frontier faster than comparable firms with insider successions. PRACTICE IMPLICATIONS:: More research needs to be done on succession planning and its impact on CEO turnover.