Achieving Temporal Ambidexterity: CEO Turnover and Firm's shift between Exploration and Exploitation

Abstract

Recently, management scholars have suggested that firms might achieve a balance between exploration and exploitation by shifting between them over time. Yet the triggers of these shifts in organizations are not well understood. This paper examines how CEO turnover and important contingencies at the time of CEO turnover provide an opportunity for firms to shift from exploration to exploitation, or vice versa. To avoid potential endogeneity arising from unobserved factors that lead to both CEO turnover and organizational changes in exploration and exploitation, we ran our analysis on a narrower sample using only exogenous CEO turnovers (i.e., the turnovers occurring as a result of non-firm-related reasons) to test our hypotheses. Our results show that firms tend to shift their focus in exploration and exploitation subsequent to CEO turnover. This relationship is positively moderated by poor prior firm performance. We also find that firms make larger shifts within exploration at the time of CEO turnover when there is a weak alignment between institutional investors' investment orientation (i.e., growth- or income- orientation) and the firm's focus on exploration. Moreover, we find that firms are more likely to gear their focus on exploration to meet investors' preferences for long- or short-term performance subsequent to CEO turnover.