Hiring Retiring-Age CEOs

We document a stylized fact that more than 10% of S&P 1500 companies have hired a CEO who starts the job near or above the retirement age of 65 years old (Retiring CEOs). This phenomenon exists among all industries and persists over time. This finding is puzzling because conventional wisdom suggests that agency problems increase as a CEO approaches retirement. We find that firms are more likely to hire retiring CEOs when the CEO job risk is high and when the firm is in distress. These CEOs receive lower total compensation and the compensation structure puts a higher weight on non-equity based compensation. Retiring CEOs perform better in distress and are significantly better at resolving distress. The specific actions through which retiring CEOs resolve distress include cutting operating expenses, increasing cash balance, reducing R&D expenditures, repurchase, and layoff workers. Finally, we show that retiring CEOs have a shorter tenure. Overall, evidence from this paper suggests that retiring CEOs can be beneficial to shareholders when they are hired for the right purpose