Managerial Succession and Firm Performance

Posted: 23 May 2013 Last revised: 30 May 2013

See all articles by Mark R. Huson

Mark R. Huson

University of Alberta - Department of Finance and Statistical Analysis

Paul H. Malatesta

University of Washington - Michael G. Foster School of Business

Robert Parrino

University of Texas at Austin - Department of Finance

Date Written: August 19, 2003

Abstract

We examine CEO turnover and firm financial performance. Accounting measures of performance relative to other firms deteriorate prior to CEO turnover and improve thereafter. The degree of improvement is positively related to the level of institutional shareholdings, the presence of an outsider-dominated board, and the appointment of an outsider (rather than an insider) CEO. Turnover announcements are associated with significantly positive average abnormal stock returns, which are in turn significantly positively related to subsequent changes in accounting measures of performance. This suggests that investors view turnover announcements as good news presaging performance improvements.

Keywords: Corporate governance, CEO turnover, CEO succession, Firm performance

JEL Classification: G30, G32, G34

Suggested Citation

Huson, Mark R. and Malatesta, Paul H. and Parrino, Robert, Managerial Succession and Firm Performance (August 19, 2003). Journal of Financial Economics (JFE), Vol. 74, No. 2, 2004, doi: 10.1016/j.jfineco.2003.08.002; University of Alberta School of Business Research Paper No. 2013-208. Available at SSRN: https://ssrn.com/abstract=2268746

Mark R. Huson (Contact Author)

University of Alberta - Department of Finance and Statistical Analysis ( email )

4-20C Business
University of Alberta
Edmonton, Alberta T6G 2R6
Canada
780-492-2803 (Phone)
780-492-3325 (Fax)

Paul H. Malatesta

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
United States

Robert Parrino

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States
512-471-5788 (Phone)
512-471-5073 (Fax)

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