CEO Succession Roulette
42 Pages Posted: 2 Nov 2016 Last revised: 16 Jan 2020
Date Written: January 15, 2020
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: Suggested Citation