Abstract

http://ssrn.com/abstract=681226
 
 

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Managerial Legacies, Entrenchment and Strategic Inertia


Catherine Casamatta


TSE-University of Toulouse 1

Alexander Guembel


University of Toulouse 1 - Toulouse School of Economics (TSE)

March 25, 2010

Journal of Finance, Forthcoming
AFA 2006 Boston Meetings Paper

Abstract:     
This paper argues that the legacy potential of a firm's strategy is an important determinant of CEO compensation, turnover and strategy change. A legacy makes CEO replacement expensive, because firm performance can only partially be attributed to a newly employed manager. Boards may therefore optimally allow an incumbent to be entrenched. Moreover, when a firm changes strategy it is optimal to change the CEO, because the incumbent has a vested interest in seeing the new strategy fail. Even though CEOs have no specific skills in our model, it can explain the empirical association between CEO and strategy change.

Number of Pages in PDF File: 47

Keywords: Reputational concerns, CEO turnover, compensation

JEL Classification: D82, G30, J33

working papers series


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Date posted: March 24, 2005 ; Last revised: March 27, 2010

Suggested Citation

Casamatta, Catherine and Guembel, Alexander, Managerial Legacies, Entrenchment and Strategic Inertia (March 25, 2010). Journal of Finance, Forthcoming; AFA 2006 Boston Meetings Paper. Available at SSRN: http://ssrn.com/abstract=681226 or http://dx.doi.org/10.2139/ssrn.681226

Contact Information

Catherine Casamatta
TSE-University of Toulouse 1 ( email )
Place Anatole-France
Toulouse Cedex, F-31042
France
Alexander Guembel (Contact Author)
University of Toulouse 1 - Toulouse School of Economics (TSE) ( email )
Manufacture des Tabacs
21, allee de Brienne
Toulouse, 31000
France
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