Bad News for Announcers, Good News for Rivals – Are Rivals Fully Seizing Transition-Period Opportunities Following Announcers’ Top Management Turnovers?

Strategic Management Journal, Forthcoming

41 Pages Posted: 23 Jan 2021

See all articles by Cord Burchard

Cord Burchard

WHU - Otto Beisheim School of Management

Juliane Proelss

Concordia University, Quebec; Trier University of Applied Sciences

Utz Schäffer

WHU Otto Beisheim School of Management

Denis Schweizer

Concordia University

Date Written: November 25, 2020

Abstract

Research summary. This study analyzes whether and how the disruption of top management turnovers can affect not only turnover firms but also their intra-industry rivals. It thus adds to the literature on both leader life cycles and competitive dynamics. Using a U.S. sample of 857 CEO turnovers, we find a period of relative stagnation for announcing companies following top management turnovers. We also find that intra-industry rivals can use this period to their advantage. Semi-structured interviews with seasoned CEOs, CFOs, and a board member from large publicly listed firms, as well as an extensive news search, support this notion. Intra-industry rivals gain a competitive advantage that can result in positive abnormal stock returns and accounting performance. The intra-industry outperformance is greater for forced turnovers.

Managerial summary. The departure of a company’s CEO, forced or not, is usually a disruptive event for a company, as the successor must adapt to the new environment before undertaking any major strategic changes. Rivals can seize an opportunity during the transition period of the announcing company because they remain fully operational. They can thus actively exploit the relative inability of turnover companies to react by, e.g., launching sales initiatives or increasing M&A activity. This interpretation is supported by internal and external evidence. Investors on average also recognize this situation, and stock prices react accordingly.

Keywords: Competitive Dynamics; Information Effects, Intra-Industry Effects, Leader Life Cycle, Top Management Turnover, Transition Period

JEL Classification: G14, G15

Suggested Citation

Burchard, Cord and Proelss, Juliane and Schäffer, Utz and Schweizer, Denis, Bad News for Announcers, Good News for Rivals – Are Rivals Fully Seizing Transition-Period Opportunities Following Announcers’ Top Management Turnovers? (November 25, 2020). Strategic Management Journal, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3737796 or http://dx.doi.org/10.2139/ssrn.3737796

Cord Burchard

WHU - Otto Beisheim School of Management ( email )

Burgplatz 2
Vallendar, 56179
Germany

Juliane Proelss

Concordia University, Quebec ( email )

1455 de Maisonneuve Blvd. W.
Montreal, Quebec H3G 1MB
Canada

Trier University of Applied Sciences ( email )

Scheidershof
Trier, 54293
Germany

Utz Schäffer

WHU Otto Beisheim School of Management ( email )

Burgplatz 2
Vallendar, D-56179
Germany

HOME PAGE: http://www.whu.edu/controlling

Denis Schweizer (Contact Author)

Concordia University ( email )

1455 de Maisonneuve Blvd. W.
Montreal, Quebec H3G 1M8
Canada
+1 (514) 848-2424 ext. 2926 (Phone)
+1 (514) 848-4500 (Fax)

HOME PAGE: http://www.concordia.ca/jmsb/faculty/denis-schweizer.html

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