CEO Succession Roulette

42 Pages Posted: 2 Nov 2016 Last revised: 16 Jan 2020

See all articles by Dragana Cvijanovic

Dragana Cvijanovic

Warwick Business School, University of Warwick

Nickolay Gantchev

Southern Methodist University (SMU) - Finance Department; 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: January 15, 2020

Abstract

Regulators, credit rating agencies, and securities analysts consider poor succession planning a significant business risk. However, little is known about how succession planning improves CEO turnover decisions. Using comprehensive data on the succession planning practices of U.S. public firms, we highlight three dimensions in which succession planning improves executive turnover. Firms with succession plans (i) exhibit higher levels of leadership stability, (ii) experience lower uncertainty around CEO turnover and faster learning about CEO ability, and (iii) rely primarily on firm-specific information in CEO dismissals. Our findings indicate that succession planning improves the efficiency and lowers the cost of management transitions.

Keywords: CEO turnover, succession planning, executive labor market, CEO ability, CEO performance evaluation

JEL Classification: G34, J24, J41

Suggested Citation

Cvijanovic, Dragana and Gantchev, Nickolay and Li, Qingqiu, CEO Succession Roulette (January 15, 2020). Available at SSRN: https://ssrn.com/abstract=2862653 or http://dx.doi.org/10.2139/ssrn.2862653

Dragana Cvijanovic

Warwick Business School, University of Warwick ( email )

Coventry CV4 7AL
United Kingdom

Nickolay Gantchev (Contact Author)

Southern Methodist University (SMU) - Finance Department ( email )

United States
214-768-4128 (Phone)

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

Qingqiu 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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