Vulnerability in Transition Period: Newly appointed CEO Dismissals and Rivals’ Competitive Actions

Abstract

Dismissal of newly appointed CEOs has become increasingly prevalent and attracted significant scholars’ and practitioners’ attention. Prior studies on this topic have mainly focused on its implication for the focal firm. This study extends the extant research by investigating how a focal firm’s dismissal of its newly appointed CEO may influence its rivals’ competitive actions. Building on CEO dismissal and competitive dynamics literature, we argue that as focal firm may experience organizational disruption from dismissing its newly appointed CEO, its rivals may seize opportunities in the vulnerable transition period and benefit from initiating more intense competitive actions toward the focal firm. Using data on dismissals of newly appointed CEO and rivals’ competitive attacks in public firms listed in United States from 2000 to 2019, we find that rival firms initiate more intense competitive actions upon the announcement of the focal firm’s dismissal of its newly appointed CEO. Moreover, the main effect would be moderated by the degree of competition intensity in the focal-competitor dyad level, which are captured by geographic market overlap and product similarity. We find that geographic market overlap and product similarity between focal and competitor firms both will strengthen our main effect. These results suggest that closer competitors to the focal firm benefit more from the focal firm’s disruption. This study contributes to the CEO dismissal literature by demonstrating the impact of CEO dismissal beyond the focal firm.