CEO Succession Roulette

43 Pages Posted: 2 Nov 2016 Last revised: 4 Nov 2019

See all articles by Dragana Cvijanovic

Dragana Cvijanovic

Warwick Business School, University of Warwick

Nickolay Gantchev

Southern Methodist University (SMU) - Finance Department; European Corporate Governance Institute (ECGI)

Rachel Li

University of Alabama - Department of Economics, Finance and Legal Studies

Date Written: November 1, 2019

Abstract

Regulators, credit rating agencies, and securities analysts consider poor succession planning a significant business risk that destroys billions in firm value. However, little is known about the specific benefits of succession planning for CEO turnover. Using comprehensive data on the succession planning practices of U.S. public firms, we highlight three dimensions in which succession planning improves executive turnover decisions. Firms with succession plans (i) exhibit higher levels of leadership stability, (ii) experience lower uncertainty around successions and faster learning about CEO ability, (iii) rely primarily on firm-specific information and more sophisticated evaluation metrics 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, performance evaluation

JEL Classification: G34, J24, J33, J41

Suggested Citation

Cvijanovic, Dragana and Gantchev, Nickolay and Li, Qingqiu, CEO Succession Roulette (November 1, 2019). 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)

European Corporate Governance Institute (ECGI) ( email )

HOME PAGE: http://www.ecgi.org

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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