Changing of the Guards: Does Succession Planning Matter?
43 Pages Posted: 2 Nov 2016 Last revised: 11 Jul 2018
Date Written: July 2, 2018
This paper studies the effects of succession planning on management turnover using hand-collected data on succession planning practices at U.S. public firms. Our tests highlight three dimensions in which succession planning impacts CEO turnover. Firms with succession plans (i) experience lower uncertainty around successions and faster learning about CEO ability, (ii) rely primarily on firm-specific information in CEO dismissals, and (iii) use more sophisticated performance metrics in evaluating their executives. Our findings are robust to the effects of firm and industry characteristics, and indicate that succession planning improves the efficiency and lowers the cost of management transitions.
Keywords: CEO turnover, succession planning, CEO labor market, CEO ability, performance evaluation
JEL Classification: G34, J24, J33, J41
Suggested Citation: Suggested Citation