CEO Succession Gap and Firm Performance

54 Pages Posted: 27 Jul 2018

See all articles by Renzhu Zhang

Renzhu Zhang

University of Otago - Department of Accountancy and Finance

Gurmeet S. Bhabra

University of Otago - Department of Accountancy and Finance

Hsin-I Chou

University of Otago - Department of Accountancy and Finance

Eric K. M. Tan

University of Queensland - Business School

Date Written: March 28, 2018

Abstract

This paper examines the effect of a CEO succession gap on subsequent firm performance. We show that a gap index constructed using differences in CEO attributes between the predecessor and the successor leads to deteriorating subsequent firm performance when the succession event itself is characterized as disruptive. Successors with gaps (i.e., differences from their predecessors) are more likely to make downsizing and business divesting decisions and bring with them a higher proportion of co-opted directors when there is a mandate for change. Overall, our findings suggest that tapping successors who bring in a new set of attributes that are markedly different from their predecessors is not value enhancing under forced succession and poor pre-succession financial performance.

Keywords: CEO Attributes, Succession, Firm Performance

JEL Classification: G30, G32, J62, J63

Suggested Citation

Zhang, Renzhu and Bhabra, Gurmeet S. and Chou, Hsin-I and Tan, Eric K. M., CEO Succession Gap and Firm Performance (March 28, 2018). Available at SSRN: https://ssrn.com/abstract=3220794 or http://dx.doi.org/10.2139/ssrn.3220794

Renzhu Zhang (Contact Author)

University of Otago - Department of Accountancy and Finance ( email )

Dunedin
New Zealand
+64274917441 (Phone)

Gurmeet S. Bhabra

University of Otago - Department of Accountancy and Finance ( email )

PO Box 56
Dunedin
New Zealand
64-3-4795124 (Phone)
64-3-8194 (Fax)

Hsin-I Chou

University of Otago - Department of Accountancy and Finance ( email )

PO Box 56
Dunedin, 9054
New Zealand

Eric K. M. Tan

University of Queensland - Business School ( email )

Brisbane, Queensland 4072
Australia

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