New CEOs and Strategic Change:Impacts of outsiderness, regulatory focus, and insider successor type

Abstract

Despite a consensus that poor pre-succession firm performance triggers new CEOs to make strategic changes following successions, it has been suggested that not all new CEOs in poorly performing firms are equally open-minded about initiating strategic changes. We examine how CEOs’ characteristics and pre-succession firm performance interact to influence whether they maintain the status quo or make changes in strategy after successions. Building on strategic leadership and psychological trait literature, we focus on three dimensions of CEO characteristics: outsiderness, regulatory focus, and insider successor type. The hypotheses are examined by using data of 393 CEO succession events in large US companies for the years from 2005 to 2016. Our findings show that: (1) the negative relationship between pre-succession firm performance and strategic change is strengthened when new CEOs have high degrees of outsiderness; (2) the negative relationship is weakened when new CEOs has a strong prevention focus; and (3) the negative relationship is stronger when insider successors are contenders rather than followers. Overall, the results support our arguments that the familiar dichotomy between insider and outsider is to neglect important differences among both outsiders and insiders. The findings also suggest that CEO prevention focus may serve an indicator of preference for the strategic status quo.