Succession

46 Pages Posted: 27 Oct 2023 Last revised: 15 May 2024

See all articles by Thomas Geelen

Thomas Geelen

Copenhagen Business School - Department of Finance; Danish Finance Institute

Jakub Hajda

HEC Montreal - Department of Finance

Date Written: May 15, 2024

Abstract

Managing CEO succession is one of the board’s most important tasks. We develop a dynamic model of CEO succession to analyze executive hiring, firing, and entrenchment. The board learns about the CEO’s and successor’s ability and can decide to replace the executives internally or externally. Our model explains the board’s preference towards internal CEO successions, which become more likely with more efficient executive labor markets. We also demonstrate that the CEO’s ability to sabotage the successor can make the CEO more entrenched but can also backfire and get the CEO fired.

Keywords: Succession, CEO labor markets, CEO turnover, managerial entrenchment

JEL Classification: G30, G34, M12

Suggested Citation

Geelen, Thomas and Hajda, Jakub, Succession (May 15, 2024). Available at SSRN: https://ssrn.com/abstract=4558009 or http://dx.doi.org/10.2139/ssrn.4558009

Thomas Geelen (Contact Author)

Copenhagen Business School - Department of Finance

Solbjerg Plads 3
Copenhagen, Frederiksberg 2000
Denmark

Danish Finance Institute ( email )

Jakub Hajda

HEC Montreal - Department of Finance ( email )

3000 Chemin de la Cote-Sainte-Catherine
Montreal, Quebec H3T 2A7
Canada

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