Lost in Transition: Generalized Trust and CEO Succession

Abstract

This study identifies two channels through which generalized trust influences CEO succession: the substitution between generalized and personalized trust in selecting the pool of candidates; and the complementarity between generalized and personalized trust in reducing the time for the process. We find that, given the same headquarters location, the proportion of candidates outside the founder’s in-groups increases in generalized trust of the founder’s birthplace, but the length of the succession process decreases in generalized trust. The latter effect is especially salient when the succeeding CEO is outside the founder’s in-groups. The selection channel largely explains the effect of generalized trust on cross-sectional variation in post-succession performance of family CEOs.

Keywords: generalized trust; personalized trust; CEO succession; in-groups; talent pool; culture

JEL Classification: A12; D22; G30; M51; J71