Worth the Wait? Delay in CEO Succession after Unplanned CEO Departures

Abstract

This paper analyzes changes in shareholder value and firm performance in relation to the delay (or lack thereof) in CEO succession. I find that, on average, delay in succession is associated with stronger performance after an unplanned CEO departure. However, the value effect of delay varies and not all firms benefit from long delay. Firms with higher stock price volatility and those whose CEO is hired away experience lower performance. These results suggest that delay affects frictions in the CEO labor market. The impact of delay is particularly important when firms have no succession plan in place.

Keywords: CEO Turnover, CEO Succession, CEO Labor Market

JEL Classification: G30, G34, J33, M51