CEO Transitions Research Articles

Changing Ideological Regimes: CEO Succession with A Shift in Political Ideology and New CEO Early Departure

AbstractWe examine the effects of CEO succession coupled with a change in political ideology – when a conservative CEO is replaced by a liberal CEO or vice versa. We argue that in such CEO transitions, the new CEOs must alter their predecessors’ ideological imprints to imbue strategic leadership with their own values, which increases their executive job demands in the critical early years of their tenure and raises the likelihood of their early departure. We also suggest that this relationship is moderated by two strategic leadership interface (SLI) factors that influence the executive job demands these new CEOs face: (a) the retention of the ideologically incongruent predecessor as board chair, and (b) the ideological fit between the new CEO and the incumbent executive team. We first test our framework using data from 2286 CEO successions in S&P 1500 firms. We then conduct an experimental study to ensure causality and confirm executive job demands as a mediating mechanism underlying the relationship. Overall, our study advances the disruption theory of succession by shedding light on the deeply held mechanisms that lead to early failure in CEO transitions.

Founder CEOs and ESG

We examine the relation between a firm's environmental, social, and governance (ESG) performance and its CEO's founder status, an important but previously unexplored leadership attribute in this context. We find that founder-CEO-led firms exhibit superior ESG performance. We further document that founder CEOs impact firm ESG behavior through a reputation channel. Specifically, founder CEOs invest significantly more in ESG activities in highly visible firms than non-founder CEOs. Founder CEOs are also particularly mindful of their environmental reputation. On the other hand, in low visibility firms, founder and non-founder CEOs exhibit little differences in the overall ESG activities. The results are robust to controlling for various firm, CEO, and industry characteristics. Using CEO transitions from founder to non-founder status and vice versa, we conduct propensity score matching (PSM) differences-in-differences (DiD) robustness checks. Our baseline results continue to hold.

A Study on the Relationship between CEO Succession Based on Big Data Information Processing Technology and Corporate Performance

The recognition of data elements as a crucial production factor in China in 2019 highlights the rising importance of leveraging data assets. The pivotal role of big data information processing technology in economic and financial realms cannot be understated. CEO succession is a pivotal event that heavily influences a company’s performance. However, past research on the correlation between CEO succession and corporate performance has yielded inconclusive results. This study addresses this gap by employing advanced analytical models, namely propensity score matching and difference-in-differences techniques, grounded in the realm of big data information processing technology to explore the intricate relationship between CEO succession and corporate performance. By analyzing data from A-share listed companies spanning from 2014 to 2021, noteworthy insights have emerged. Firstly, a notable negative correlation between CEO succession and corporate performance has been observed, affirming the notion of a “disruptive effect” associated with CEO transitions, leading to a decline in corporate performance. Furthermore, the study sheds light on the multi-faceted nature of factors influencing corporate performance, cautioning against attributing poor performance solely to the CEO. Consequently, enhancing corporate performance demands a nuanced approach that goes beyond mere CEO replacements, emphasizing a holistic strategy encompassing various avenues for improvement.

Gender-based CEO transitions: The role of the Big Three

The Big Three institutional investors have played an increasingly important role in corporate America. This paper investigates whether the Big Three's advocacy for gender diversity extends beyond the board level to the top management. I find that the Big Three ownership is positively associated with firms’ appointment of female CEOs when transitions occur, implying that gender diversity advocacy by index investors has effectively spilled over to top management positions. Interestingly, transitions involving female CEO appointments are positively valued by the market. My findings highlight the Big Three's commitment to tackling diversity-related issues and their ability to steer corporate decision-making.

The Career Imprint of the CEOs’ Previous Work Environment in Earnings Management Decisions

This paper examines how CEOs’ prior work experiences involving earnings management decisions continue to influence their financial reporting decisions despite their change of employers. Based on insights from the career imprint theory, we propose that firms are more likely to engage in earnings management when their newly appointed CEOs come from firms that were also involved in such practices. Empirical support was found by analyzing a dataset that tracks 855 CEO transitions. Additionally, we find that the strength of this effect is influenced by a number of factors such as the officers’ age when they joined the previous firm, the tenure length of the officers at their previous employers, the officers’ former firm size, as well as the strength of the officers’ current firm’s corporate governance. Furthermore, our results are robust after addressing for large sample, omitted variable and the self-selection biases.

Is there a racial gap in CEO compensation?

Racial gap in corporate leadership has prompted continuous and intense discussions, motivating research into the conditions minorities face after they reach top management positions. We contribute to the ongoing debate in this area by examining the association between CEO race and compensation. We do not find evidence for a significant racial wage gap at the CEO level across various econometric specifications, including total-sample OLS, firm-fixed effects to capture CEO transitions within firm, propensity score matched sample, and instrumental variable analysis. The insignificant results hold for total compensation, cash compensation, and non-cash compensation. Further, there is no consistent evidence of differences in CEO compensation for any of the major racial groups (Blacks, Hispanics, and Asians). Based on our results, we conclude that racial minorities who make it to the CEO position in Corporate America are compensated at similar levels to their Caucasian counterparts.

Is There a Racial Gap in CEO Compensation?

Racial gap in corporate leadership has prompted continuous and intense discussions, motivating research into the conditions minorities face after they reach top management positions. We contribute to the ongoing debate in this area by examining the association between CEO race and compensation. We do not find evidence for a significant racial wage gap at the CEO level across various econometric specifications, including total-sample OLS, firm-fixed effects to capture CEO transitions within firm, propensity score matched sample, and instrumental variable analysis. The insignificant results hold for total compensation, cash compensation, and non-cash compensation. Further, there is no consistent evidence of differences in CEO compensation for any of the major racial groups (Blacks, Hispanics, and Asians). Based on our results, we conclude that racial minorities who make it to the CEO position in Corporate America are compensated at similar levels to their Caucasian counterparts.

CEO Succession Within Public Enterprises in Uganda: A Phenomenology of Middle Managers’ Experiences

This paper explores the experiences of middle managers during a leadership succession within public enterprises in Uganda. Using a descriptive phenomenological approach involving in-depth interviews of middle managers across 5 public enterprises, the study found that middle managers sensed impending change, grappled with the rationale for change, exhibited a variety of emotions and experienced altered relationships with supervisors and subordinates. Basically, the findings indicated that middle managers are impacted by CEO succession in an African context and this situation has implications for organizational performance. Whereas middle managers who went through a smooth CEO succession were motivated, engaged and committed to the organization, it was the opposite in difficult CEO transitions where the supervisory role of the middle managers also declined. It is therefore important that the government, board and senior management in public enterprises involve middle managers in key processes of CEO succession.

Cash is Queen: Female CEOs’ propensity to hoard cash

Recent research makes contradictory claims regarding why female CEOs eschew riskier policies. Benchmarking risk aversion by how much cash is accumulated and managed, we find strong evidence of greater female risk aversion above the glass ceiling. Using propensity-score matching and difference-in-differences around CEO transitions to account for possible endogeneity, we find that female CEOs hold more cash, reverse cash deficits faster, and are more likely to use excess cash to increase dividends, but not investment. We also find that, in the presence of high cash holdings, female CEOs are able to generate significantly higher Return on Assets (ROA) suggesting that risk aversion on the part of female CEOs does not hurt financial performance but rather enhances it.

The effects of culture on CEO power: Evidence from executive turnover

Abstract In this paper, I show that CEO power, which arises from differences in national culture, can weaken a firm’s governance. Based on a hand-collected dataset with more than 5000 forced and voluntary CEO transitions across 37 countries, I find that CEOs are less likely to be dismissed for bad performance in more hierarchical countries. The results are robust to alternative measures of hierarchy, a large battery of control variables, subsample analysis, placebo tests, and different empirical methodologies. Stronger hierarchies also allow for idiosyncratic managerial styles around exogenous turnover events of CEOs. Overall, the results suggest that the power and importance of CEOs vary across countries.

'Passing the Baton': How Relay Affects Firm Performance and Volatility

This paper examines the effects of incoming CEOs' years being an heir apparent (relay length) on firm post-turnover performance and volatility. I estimate heirs apparent based on non-CEO executives' promotion likelihood estimated from a set of executive characteristics. I find robust evidence that firms with longer relay attain higher post-turnover accounting performance, higher long-term stock returns, and lower volatility. Furthermore, the effects on performance are stronger for firms with more specific human capital. These results suggest the important role of relay in smoothing CEO transitions. The paper also shows that the difference between inside and outside successions as found in previous studies is fully explained by firms' relay length.

“Passing the Baton”: The effects of CEO succession planning on firm performance and volatility

AbstractManuscript TypeEmpiricalResearch Question/IssueThis paper seeks to understand the way in which CEO succession planning affects firm performance and volatility during CEO turnover. Specifically, the paper examines a succession type referred to as relay succession, in which the incoming CEO has been groomed as an heir apparent before the turnover.Research Findings/InsightsHeirs apparent are identified by comparing all of a firm's non‐CEO top executives' promotion likelihood estimated based on a set of characteristics. Applying this heir apparent measure to a large sample of CEO turnovers from ExecuComp, the paper delivers robust evidence that firms with relay successions achieve higher post‐turnover accounting performance, higher long‐term stock returns, and lower volatility. Further, the positive effect of relay succession on performance is stronger for firms with higher human capital requirements.Theoretical/Academic ImplicationsThe paper provides comprehensive evidence of the important role of relay succession in smoothing CEO transitions. It also sheds new light on previous research on outside successions by showing that the difference between inside and outside successions is explained largely by the length of relay.Practitioner/Policy ImplicationsThe paper suggests that firms should consider using relay succession to improve performance and reduce volatility during the CEO transition period. The paper's findings also support the US Securities and Exchange Commission's recent appeal for more firm disclosure on its succession planning.

Board leadership and governance for clear-sighted CEO succession at Air New Zealand

AbstractIn this case study we address the issue of CEO succession drawing directly on the experience of the board of directors of Air New Zealand. Despite extensive literature on CEO-board relations, there has been a scarce number of studies on managing the processes of CEO succession and appointment from the board perspective. Drawing on documentary sources as well as in-depth interviews with all board members and CEOs appointed in the period 2002–2013, we shed light on this important governance process primarily for teaching purposes. We emphasise the board’s role in the context of the transformation of the airline into an award-winning, financially performing company in a highly competitive and mature industry. The case study examines how the board developed, implemented, and managed a succession process for three CEOs that was sound in design and achieved its desired benefits. By focusing on board leadership and board processes our case study provides evidence that independent boards can shape a specific combination of governance practices which contribute to successful CEO transitions.

"Learning during CEO Transitions: The Impact of Identity, Social Context, and Enactment"

Traditionally, CEO succession scholars have examined the impact the origin of the new CEO, insider or outsider, has upon organizational performance. Many scholars have assumed insiders (aka heirs apparent) have an advantage over outsiders because they have the opportunity to learn from the outgoing CEO during the transition period. Despite the dominance of this assumption, little research has focused on whether, or how learning occurs during this transition. Using a qualitative methodology, this research studied 22 insider CEO successions. We explore the learning processes of incoming insiders from when they were designated as the next CEO until they assumed that position. First, we find, upon designation, changes in executives’ identity and social context influenced how they interpreted cues from the environment. CEO designates felt compelled to adjust their behaviors and cognition accordingly. Second, we find CEO designates go through a special process to develop their standards for the future CEO identity. Third, we identify the impact of three enactment relationships between incoming and outgoing CEOs on learning during the transition period. We present our revised theoretical framework and propositions after alternating between theory and findings.

Bureaucrats as Successor CEOs

Chinese companies sometimes appoint a government official (bureaucrat) as CEO on the expectation of benefiting from the political connections of the new hire. Based on a sample of 2,454 CEO transitions our empirical findings are consistent with the implications of a simple contract model in oligopolistic markets. Firms that appoint a bureaucrat as CEO obtain more credit and subsidies. They have positive abnormal announcement returns, negative abnormal long-run returns and larger variance of long-run returns. Furthermore, they experience a deterioration in operating performances, increased rent-seeking behavior of the management and weakening of corporate governance. The results from the split share structure reform in 2005 corroborate the supportive findings for the preferential treatment hypothesis.

Culture and CEO Power: Evidence from Executive Turnover

Based on a hand-collected dataset with more than 5,000 forced and voluntary CEO transitions across 37 countries, I find that the importance and power of CEOs differ from country to country. First, CEOs are less likely to be dismissed for bad performance in more hierarchical countries. They are also more likely to move to director or chairman positions in the same firm so that they can save their face. This procedure, however, deteriorates post-turnover performance. Finally, stronger hierarchies allow for idiosyncratic managerial styles around exogenous turnovers of CEOs. This is in contrast to existing literature on CEOs in the U.S., where hierarchies are relatively flat. Overall, the findings suggest that national culture affects managerial power.

CEO identity and labor contracts: Evidence from CEO transitions

This paper assesses how CEO transitions shape labor contracts within firms. We argue that family links between a new CEO and his predecessor act as a commitment device for upholding implicit contracts with the workforce. Consistent with this view, we find evidence of a wage insurance mechanism during a CEO transition. Dynastically-promoted CEOs relative to external CEOs are associated with up to 25% less job separations and 20% lower wage growth. Crucially, we show that differences, in terms of job separations, between dynastic and non-dynastic CEO successions are significantly greater when labor markets are more frictional.

CEO-Chair Duality Split: An Alternative to Firing

An interesting puzzle in corporate finance is the weak sensitivity of disciplinary action against CEO to poor firm performance. I show that this weak relation is in part driven by an overlooked alternative to firing, which in practice takes the form of splitting the CEO-Chairman role or demoting the incumbent CEO to the executive Chairman position. I first document that such demotions are a frequently used alternative disciplinary mechanism, accounting for nearly 40% of all involuntary CEO transitions. I further show that the use of this mechanism is concentrated among firms in which the CEO is most entrenched or the cost of firing its CEO is high, i.e. CEOs with firm or industry-specific managerial skills and those with strong long-term performance and weak governance. Market reactions to CEO demotions are positive, on average. Finally, I show that classifying CEO demotions as an alternative form of involuntary turnover magnifies the sensitivity of involuntary turnover to firm performance and eliminates the relation between performance and voluntary turnover.

CEO Succession Mechanisms, Organizational Context, and Performance: A Socio‐Emotional Wealth Perspective on Family‐Controlled Firms

AbstractThis article extends the literature on CEO succession and financial performance by addressing corporate owners' mixed motives and desires to protect their interest in being in business. We draw on a Socio‐Emotional Wealth (SEW) perspective to investigate how the choice of one of three succession mechanisms – relay succession, ‘horse races’ among internal CEO candidates, and hiring from outside – may effectively balance trade‐offs between corporate owners' non‐financial SEW motives and the firm's financial performance. We find that implementing one of these succession mechanisms reduces the negative impact that typically characterizes CEO transitions in family firms. We also show that family presence on the board of directors offsets the benefits of having selected these balancing succession mechanisms, in either placing too much emphasis on SEW, or creating negative dynamics that make the chosen succession mechanisms less effective.

Analyzing promotions of racial/ethnic minority CEOs

Purpose – The purpose of this paper is to understand the conditions under which racial/ethnic minorities are promoted to top leadership positions in American corporations. In addition to testing the glass cliff theory for racial/ethnic minorities, the paper also develops and test two additional theoretical mechanisms: bold moves and the savior effect. While the glass cliff theory predicts racial/ethnic minorities will be promoted to struggling firms, the bold moves theory predicts the opposite, that racial/ethnic minorities will be promoted to strong firms. The savior effect predicts that minority CEOs will be replaced by white male leaders if firm performance struggles during their tenure. Design/methodology/approach – This paper relies on conditional logistic regression to analyze all CEO transitions among Fortune 500 companies over a 15-year period. Findings – Consistent with the bold moves thesis but contrary to the predictions of glass cliff theory, the results suggest that racial/ethnic minorities a...