CEO Succession Roulette

55 Pages Posted: 2 Nov 2016 Last revised: 24 Feb 2021

See all articles by Dragana Cvijanovic

Dragana Cvijanovic

Cornell SC Johnson College of Business; Warwick Business School, University of Warwick

Nickolay Gantchev

University of Warwick - Warwick Business School; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Rachel Li

University of Alabama - Department of Economics, Finance and Legal Studies

Date Written: February 23, 2021

Abstract

Despite intense scrutiny from investors, markets, and regulators, most public companies have no formal succession plans. Anecdotal evidence links succession risk to significant value destruction, but there is limited academic research evaluating the effects of succession planning on CEO turnover outcomes. We show that succession planning lowers the cost of management transitions by improving their efficiency, as evidenced by lower stock return volatility around turnover events. We attribute the higher efficiency to (i) faster learning about the incoming CEO’s ability and better CEO-firm fit, and (ii) reliance on firm-specific information and clearly defined performance measures in CEO dismissals. Our findings indicate that succession planning enhances the efficiency of both CEO hiring and CEO dismissal outcomes.

Keywords: CEO turnover, succession planning, executive labor market, CEO ability, CEO performance evaluation

JEL Classification: G34, J24, J41

Suggested Citation

Cvijanovic, Dragana and Gantchev, Nickolay and Li, Qingqiu, CEO Succession Roulette (February 23, 2021). Available at SSRN: https://ssrn.com/abstract=2862653 or http://dx.doi.org/10.2139/ssrn.2862653

Dragana Cvijanovic

Cornell SC Johnson College of Business ( email )

Ithaca, NY 14850
United States

Warwick Business School, University of Warwick ( email )

Coventry CV4 7AL
United Kingdom

Nickolay Gantchev (Contact Author)

University of Warwick - Warwick Business School ( email )

Coventry CV4 7AL
United Kingdom

HOME PAGE: http://www.NickolayGantchev.com

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

HOME PAGE: http://cepr.org

European Corporate Governance Institute (ECGI) ( email )

HOME PAGE: http://ecgi.global/users/nickolay-gantchev

Qingqiu Li

University of Alabama - Department of Economics, Finance and Legal Studies ( email )

P.O. Box 870244
Tuscaloosa, AL 35487
United States

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