Back in Style (Limited Edition): Contrasts in Style and CEO Impact on Corporate Policy
34 Pages Posted: 11 Nov 2012 Last revised: 31 Oct 2013
Date Written: November 11, 2012
This paper proposes a new approach to study how corporate policies change upon the replacement of the CEO. We employ empirical Bayes simultaneous tests on the executive fixed effects and find a significant heterogeneity in their styles. Furthermore, we implement a measure that explores the differences in styles between the exiting CEO and the incoming CEO. This comparison reveals that corporate policies change before and after a turnover. Moreover, some changes are not immediate, so we estimate how fast the firm policy converges to the new equilibrium. For the most part, our results are not significantly different if we consider exogenous turnovers (e.g., death, illness, and natural retirements). Thus the relationship between CEO turnover and subsequent corporate policy is not only driven by the event itself, but it is also largely determined by the contrasts between CEOs’ characteristics.
Keywords: Managerial style, CEO turnover, CEO fixed effects, financing decisions, investment decisions, corporate policy
JEL Classification: G30, G31, G32, M12
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