CEO Succession Roulette

Management Science, forthcoming

48 Pages Posted: 2 Nov 2016 Last revised: 4 Apr 2022

See all articles by Dragana Cvijanovic

Dragana Cvijanovic

Cornell SC Johnson College of Business

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: April 4, 2022

Abstract

Despite intense scrutiny from investors, markets, and regulators, many 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 provide evidence that succession planning reduces the cost of management transitions by improving their efficiency. Firms with succession plans experience not only lower uncertainty around turnover events but also a faster reduction in uncertainty over the incoming CEO’s tenure, consistent with faster learning about CEO-firm fit. Succession planning also raises the quality of the CEO-firm match, as evidenced by longer CEO tenure, and improves the board’s readiness to replace an underperforming CEO, increasing turnover-performance sensitivity.

Keywords: CEO turnover, succession planning, executive labor market, CEO-firm match, CEO turnover-performance sensitivity

JEL Classification: G34, J24, J41

Suggested Citation

Cvijanovic, Dragana and Gantchev, Nickolay and Li, Rachel, CEO Succession Roulette (April 4, 2022). Management Science, forthcoming, 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

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

Rachel 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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