Lame-Duck CEOs

44 Pages Posted: 22 Jun 2018 Last revised: 1 Oct 2018

See all articles by Marc Gabarro

Marc Gabarro

University of Mannheim

Sebastian Gryglewicz

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Shuo Xia

Halle Institute for Economic Research; Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Date Written: September 29, 2018

Abstract

We examine the relationship between protracted CEO successions and stock returns. In protracted successions, an incumbent CEO announces his or her resignation without a known successor, so the incumbent CEO becomes a “lame duck.” We find that 31% of CEO successions from 2005 to 2014 in the S&P 1500 are protracted, during which the incumbent CEO is a lame duck for an average period of about 6 months. During the reign of lame duck CEOs, firms generate an annual four-factor alpha of 11% and exhibit significant positive earnings surprises. Investors’ under-reaction to no news on new CEO information and underestimation of the positive effects of the tournament among the CEO candidates drive our results.

Keywords: lame duck, CEO turnover, succession planning, corporate governance

JEL Classification: G34, J63, J64, M12, M51

Suggested Citation

Gabarro, Marc and Gryglewicz, Sebastian and Xia, Shuo, Lame-Duck CEOs (September 29, 2018). Available at SSRN: https://ssrn.com/abstract=3193048 or http://dx.doi.org/10.2139/ssrn.3193048

Marc Gabarro

University of Mannheim ( email )

Mannheim, 68131
Germany

HOME PAGE: http://https://finance.uni-mannheim.de/home

Sebastian Gryglewicz

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

Shuo Xia (Contact Author)

Halle Institute for Economic Research ( email )

P.O. Box 11 03 61
Kleine Maerkerstrasse 8
D-06017 Halle, 06108
Germany

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

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