Are The New CEOs Good Matchs To The Firms?

Do boards know when they hire a new CEO is a good match to the firm? With the establishment and improvement of modern enterprise system, corporate governance is being paying more and more attentions. The company’s achievements, the prospects for development and the benefits of the shareholders, all without exception are closely bound up with the high managements especially CEOs’ decisions. While there is a growing literature that tediously links the CEO characteristics to the firm’s performance, the most notable difference of this paper is that it takes CEO and the firm as a whole instead of focus on either CEO or the firm respectively. The literature tries to open the black box that is a matching process between CEO and firm. And match theory will no doubt provide a new angle for us to study corporate governance further.From the perspective of job-match theory, this paper holds the idea that CEOs with longer tenure have more initial compensation than that do not. Besides, for company knows more about their own employees, they always incline to choose the new CEOs from inside CEO market. In this context, the effect of good-match premium for inside CEOs will be more significant than outside CEOs theoretically.Using company’s data in Shanghai and Shenzhen Stock Exchange, this paper examined empirically the relations between CEO initial compensation and match quality. Our evidence suggests that those who remain in office at least four years earn more than those with shorter tenure. Besides that, we also find that inside CEOs in office for at least four years have initial compensation more than inside CEOs that are not in office for four years, and the good-match premium for inside CEOs is larger than that for outside CEOs.