CEO Appointments Research Articles

CEO Succession and TMT Changes – The Role of CEO’s Temporal Depth

Why do some new CEOs change their TMT more than others? Prior research has predominantly focused on strategic and performance outcomes of CEO succession, paying little attention to top management team (TMT) changes following succession. We fill this void by shedding light on the quantitative and qualitative nature of TMT changes following CEO succession. Specifically, we examine the role of new CEOs’ temporal depth, a central cognitive feature which captures the temporal distance that individuals consider when thinking about past and future events on changing their TMT. We propose that new CEOs with a longer temporal depth will initiate fewer TMT changes after taking office, and increase their teams’ diversity. Studying CEO appointments in S&P 500 firms between 2004 and 2020, and by applying a novel machine learning approach to measure CEO temporal depth, we find evidence that new CEOs change the TMT in line with their temporal disposition. Our paper contributes to CEO succession research by introducing temporal depth as an important disposition of new CEOs, which influences TMT changes. We also contribute to TMT turnover research by investigating the quantitative and qualitative nature of TMT changes. We enrich research on temporality in strategic management, which has mainly studied the strategic consequences of executives’ temporal dispositions, by shedding light on the role of CEO temporal depth in TMT changes. Finally, we advance methodological approaches in strategic management research by introducing a novel natural language processing approach.

CEO education in Russia: First systematic evidence and a research agenda

We use a novel hand-collected dataset to provide first systematic evidence on CEO education in Russian publicly traded companies over 2009–2020, including its link to other characteristics of CEOs and key attributes of firms. We find that almost all CEOs in Russia have higher education, that PhD degrees are unusually common, while MBA degrees are relatively rare, that CEOs with different levels of education differ among a number of key socio-demographic characteristics and that the appointment of CEOs with various educational levels is systematically related to firm-level attributes, including ownership and governance structure. In particular, PhD CEOs, who are relatively older, are more likely to have prior connections to government and also tend to be chosen by companies with state ownership, while MBA CEOs, who are relatively younger, are more likely to be chosen by companies with foreign ownership. An important implication is that establishing a causal effect of CEO education on firm behavior and performance requires addressing endogeneity problems caused by potential omitted variables at the CEO level and non-random selection of CEOs by different types of firms. The article outlines several areas for future research.

Insider vs. outsider CEO and firm performance: Evidence from the Covid-19 pandemic

We examine the connection between firm performance and a CEO's previous position (inside or outside the firm), using Covid-19 as an exogenous shock. Firms led by insider CEOs outperformed those led by outsider CEOs in terms of return on assets during the Covid-19 crisis period in 2020, but there was no performance differential in the period before the crisis. Additional tests indicate that outperformance under insider CEOs is observed in firms holding more cash and firms with a higher proportion of internally promoted non-CEO executives. These findings have important implications for boards of directors making CEO appointments.

When do Firms with new CEOs Engage in M&A? The Role of Stock Market Reactions to the CEO Appointment

This study examines the effect of the stock market reactions to the announcement of a new CEO on the firm’s acquisitions during the first year of the CEO’s mandate. Using a behavioral agency framework, we propose that newly appointed CEOs announce more acquisitions at the beginning of their term if the stock market reactions upon their appointment are less favorable. Such initial less favorable market reactions may endanger the CEOs’ compensation and employment. As a result, new CEOs may be willing to take more risk through M&As to overcome these potential losses. However, we propose that lower managerial discretion at the country and firm level, i.e. a lower CEOs’ latitude of action to take decisions within a country and firm governance structure, may limit the CEOs’ ability to engage in M&As based on their preferences. Analyzing an international sample of 628 newly appointed CEOs and their M&A activity in the first 12 months after their appointment between 2003 and 2014, our results support most of our predictions.

The role of board members’ networks in acquiring and using information for outsider CEO selection

Outsider CEO selection is one of the most difficult decisions for boards due to lack of information for evaluating suitable candidates. We hypothesize and find evidence that boards use their professional networks to obtain information about outsider CEO candidates in a sample of 318 outsider CEO appointments in S&P 1500 firms from 2004-2013. Our hypothesis that direct ties provide more reliable information and are thus more likely to lead to a candidate being selected than indirect ties was supported. We did not find support for the hypothesis that ties to members of the nominating committee or to more senior board members increase the likelihood of being selected, which indicates that in outsider CEO selection information quality matters more than individual board members’ role or status.

Scholar-type CEOs and Stock Price Crash Risk of Listed Companies

For China’s stock market, which is in the emerging capital market, chasing the rise and killing the fall and extreme market risks occur frequently. The risk of stock price crash caused by this phenomenon has become a major obstacle to the orderly development of capital market. The managerial characteristics of scholar-type CEOs are of great significance to the management behavior of enterprises. Their management style is reflected in the decision-making behavior of enterprises, which provides a new research perspective for the risk of stock price crash. Based on the brand theory and the reputation theory, academic experience shapes executives’ higher moral quality and sense of social responsibility, and shapes their rigorous logical reasoning and analytical judgment ability; it makes them have higher reputation cost, and makes them more conservative, self-disciplined, professional and rational, and more motivated to restrain themselves when participating in management decision-making. Based on the A-share listed companies in China from 2009 to 2018, this paper empirically tests the objective performance, transmission path and influencing factors of CEO academic experience influencing stock price crash risk. From the perspective of information risk and agency risk, we find that scholar-type CEOs can significantly reduce the risk of stock price crash by reducing information risk and agency risk; further research on the influencing factors and economic consequences of stock price crash risk shows that CEO academic experience can reduce the risk of stock price crash more effectively in the case of non-state-owned enterprises, the combination of two jobs, and higher institutional investors’ shareholding ratio. This paper interprets the formation mechanism of stock price crash risk of listed companies based on the perspective of executive governance, and supports the information hiding hypothesis. From the theoretical level, the research result provides ideas for further exploring how management experience affects corporate financial behavior, and provides a new perspective and beneficial supplement for the research of high-level echelon theory and executive heterogeneity; from the practical level, it provides new evidence support for listed companies to make scientific and reasonable CEO appointment decisions and high-level talent selection, and provides practical guidance and experience reference for further exploring the impact of executive academic experience on enterprise management behavior, promoting the healthy and orderly development of the capital market, and establishing a stable multi-level capital market.

Investor Reactions to Minority CEO Appointments: The Intersection of Race-Ethnicity and Gender

Despite growing attention to the disadvantages experienced by racial-ethnic minorities in society, there is limited understanding of how race-ethnicity affects strategic leaders. We develop theory ...

When Do Outside CEOs Underperform? From a CEO-Centric to a Stakeholder-Centric Perspective of Post-Succession Performance

How does the appointment of an outside CEO affect the hiring firm’s performance? Prior research reports that outside CEOs tend to underperform compared to inside CEOs, with high performance varianc...

Female CEO and Market Reaction

This study aims to examine market reaction to the announcement of female CEOs appointment at companies listed on the Indonesia Stock Exchange (IDX) over the period 2010-2018. The first test uses event study analysis through t-tests using the one-sample t-test method. It was found that the market reacts negatively to the announcement of the appointment of a female CEO. Moreover, further tests are carried out to determine the factors which influenced the negative reactions, such as the characteristics of the female CEOs themselves coupled with the characteristics of the company as the control variable. The results of the regression analysis show that the characteristics of female CEOs in the form of family relations with the board of commissioners have a negative effect on market reaction. While other characteristics such as age and education of the female CEOs do not affect the market reaction. Other additional information shows that company size also has a negative effect to market reaction. Things that need to be considered by companies when they want to appoint a woman as CEO is if the candidate for CEO has a family relationship with the board of commissioners. The size of the company also needs to be considered. The bigger the size of the company, the presence of a female CEO is also increasingly in doubt because it is considered to interfere with the company's existing operations and strategy.

Examining investor reactions to appointments of Black top management executives and CEOs

AbstractResearch summaryThe authors investigated investor reactions to the appointment of Black executives. The results indicate that investors respond: (1) more negatively to the announcement of Black CEO appointments than to White CEO appointments, (2) more negatively to the announcement of the Black top management team (TMT) appointments than to White TMT appointments, (3) more negatively to the announcement of Black CEO appointments than to Black TMT appointments, and (4) more negatively to the announcement of Black CEO appointments who are promoted from outside the firm than to the announcement of Black CEO appointments who are promoted from inside the firm. Moreover, the post‐hoc analysis revealed that investors react more negatively to the TMT appointment of Black executives than to the TMT appointment of Latino or Asian executives. Our results show the negative association between the appointment of Black executives and investors' reactions, and we hope it sparks future research examining causal factors and their potential solutions.Managerial summaryInvestors react more negatively to the announcement of Black CEO appointments than to White CEO appointments, and more negatively to the announcement of Black CEO appointments who are promoted from outside the firm than to the announcement of Black CEO appointments who are promoted from inside the firm. Moreover, investors react more negatively to TMT appointments of Black executives than to TMT appointments of White, Latino, or Asian executives.

Interim CEO and corporate long‐term investment: evidence from China

AbstractBuilding on the short‐term nature of interim CEO contracts, this paper examines the effect of interim CEO appointment on corporate long‐term investment measured by a firm’s R&D spending. We find robust evidence that the corporate R&D investment level is significantly lower during the interim CEO appointment period. The negative association between R&D investments and the interim CEO appointment is most pronounced when interim CEOs exhibit a myopic tendency. The primary findings disappear in the subsample of state‐owned companies, highlighting the bright side of state ownership in ameliorating managerial myopia. Finally, we document that appointing an interim CEO is costly for shareholders in the short run as well as in the long run.

Attracting CEO directors: the case of Latin America

PurposeTo understand if certain board traits can contribute to attract CEO directorsDesign/methodology/approachPanel data model with firm fixed effects of individual and firm level attributes from 450 public firms in Argentina, Brazil, Chile, Colombia, Mexico and PeruFindingsHigher levels of masters abroad, board ties, government experience and foreign members are all negatively related to the appointment of CEO directorsOriginality/valueThe use of non-performance outcome variable such as CEO experience in the family led emergent environment of Latin America

The effect of bank governance on borrowers’ accounting choices

ABSTRACT This study analyzes the effect of bank CEO appointment structure and tenure on borrowers’ accounting practices and earnings management. Drawing on agency theory, we posit that agency costs are high for banks that frequently change CEOs and those that appoint CEOs from external sources. The results indicate firms that borrow from banks with high agency costs adopt less conservative accounting practices and employ real activities earnings management when deteriorating management conditions lead to negative cash flow. This study provides a strong empirical foundation for future research by verifying that appointment structure and tenure of bank CEOs affect borrowers’ accounting choices.

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Better in the Shadows? Public Attention, Media Coverage, and Market Reactions to Female CEO Announcements

Combining media coverage data from approximately 17,000 unique media outlets with the full population of CEO appointments for U.S. publicly traded firms between 2000 and 2016, we investigate whether female CEO appointments garner more public attention compared with male appointments, and if so, whether this increased attention can help make sense of the previously reported negative market reaction to these events. Contrary to prior reports, our data do not indicate that the appointments of female CEOs elicit overly negative market reactions, on average. Our results do highlight an important moderating role of public attention, however. We demonstrate that greater attention—even when exogenously determined—contributes to negative market reactions for female CEO appointments but positive market reactions for male CEOs, all else held constant. Additionally, female CEO appointments that attract little attention garner significant positive responses in the market, compared with both male CEOs drawing similarly limited levels of attention and female CEOs drawing high levels of attention. Our results help to reconcile contrasting empirical findings on the effects of gender in executive leadership and parallel recent work on anticipatory bias and second-order discrimination in alternative empirical contexts. Implications for research on attention, gender bias, and executive succession are discussed.

Yes Bank: Journey from sustainable banking to “bank run”

March 6, 2020, aftermarket hours Reserve Bank of India declared a capping of 50,000 withdrawal limit per bank account in a month in YES bank. This statement created panic in the market among saving bank account customers. Being the 4th largest bank in-country bank was having more than 6,00,000 crore of deposits; this made a lack of confidence among depositors. Internet banking was also not working, and long queues could be seen at the ATM counter. March 7, 2020, YES Bank share took a deep dive from 98 to 5.15. Technical traders and fundamental investors had seen some of the signals like that, but this was not suddenly. The fall of YES bank covers many incidents starting from the fall of PMC bank led to YES bank's fall. However, to maintain the trust or confidence of Indian customers and investor RBI also announced its rescue plan. Search warrant against Mr. Rana Kapoor, cofounder of YES bank against money laundering; appointment of new CEO of YES bank Mr. Ravneet Gill; taking over the command of YES bank by Reserve Bank of India and putting the withdrawal limit of 50,000 per account created panic among customers and users This series of events led YES bank from sustainable banking to bank run. Mr. Sanchit Soi, a retail investor, invested 2,00,000 in Yes Bank in 2019 and now in a dilemma to square off the position and bear the losses or maintain the position. Mr. Sanchit then started analysing the YES bank from a different perspective and explored a few facts.

The relationship between the socio-emotional wealth dimensions and earnings management by thresholds: evidence from French family companies

The objective of this study is to investigate the relationship between a two socio-emotional wealth dimensions, (i.e., family control and influence and the transgenerational sustainability), and the family managers' willingness to manipulate earnings level to meet or beat zero threshold. Based on an initial sample including all listed firms on CAC All-Tradable during 2014 to 2016, we extracted a final sub-sample composed of 124 observations of suspected family-firms. We developed two proxies for family control and influence dimension, i.e., the proportion of family board directors and the appointment of a family CEO. We proxied the family interest to preserve the transgenerational sustainability by the firm belonging to the founding generation. We found positive relationship between the proportion of family board directors, the generation to which a family firm belongs and earnings management to avoid loss reporting using real activities. The relationship strengthens after the fiscal year end as all variables measuring the family attachment to the SEW dimensions are significant determinant of discretionary accruals to reach zero threshold.

Does CEO Replacement at State-Owned Enterprises Matter? Evidence from the Polish Capital Market

ABSTRACT This study examines market reaction to CEO appointments at state-owned enterprises (SOEs) listed on the Warsaw Stock Exchange between 2000 and 2015. We find evidence that the market reaction to CEO turnover at SOEs is nonmonotonic. A negative market reaction dominates in a short window, whereas a positive market response prevails in a long window. In addition, we observe a significant inverted U-shaped relationship between the level of state ownership and shareholder reaction. Shareholders prefer CEO replacements at SOEs whose financial results are poor. We report a negative impact on abnormal returns if the CEO is in the pre-transition generation.

The perks of narcissism: Behaving like a star speeds up career advancement to the CEO position

It is widely acknowledged that narcissism is a peculiar characteristic of leaders, such as CEOs. However, the role of narcissism in CEO emergence and appointment has not been studied yet. We overcome this gap by studying whether having a highly narcissistic personality allows individuals to become CEOs sooner. We posit that these individuals have quicker career development, climbing the hierarchical chain faster. We also hypothesize that this relation may be moderated by the firm's characteristics, comparing family and nonfamily firms. Family firms are the most widespread organizational form of firms around the world, and their peculiarities might affect the appointment of narcissistic CEOs. Estimates on a sample of 172 individuals partially confirm the hypotheses. Highly narcissistic individuals become CEOs quicker, regardless of whether the firm is a family business or not. Narcissistic individuals thus benefit from their personality when aiming at becoming CEOs faster in their career advancement.

CEO SUCCESSION ORIGIN, TYPES AND ITS EFFECT ON PERFORMANCE IN MALAYSIA

The purpose of this study is to investigate the effect of CEO succession origin (Internal versus External), types (Voluntary and Force) on firms’ performance. The effect of CEO succession on firms’ performance is investigated using a sample size of 80 firms which consists of 40 firms that had been identified from the list in Bursa Malaysia to have experienced CEO succession and 40 firms that do not experience CEO succession in the year 2014. All financial data and variables are gathered from annual reports and the Emerging Market Information System (EMIS). The findings of this study indicate that CEO origin has no effect on performance. However, the study found a positive association between forced CEO successions on performance. Our finding suggests forced change in the CEOs improve the performance over the lag two years’ period. The appointment of new CEOs via force allows for comprehensive change in the strategy, business operations, and firm’s future growth.