Chief Executive Officer Succession Research Articles

CEO succession origin and annual reports readability

We examine the association between the origin of chief executive officer (CEO) succession (i.e., promoting a CEO from within the firm as opposed to recruiting from outside) and annual reports readability. Based on a sample of large U.S. companies during the period 2004–2020, we predict and find that companies with insider CEOs issue more readable 10-K reports compared to those who hire from outside. This positive association between insider CEOs and readability is less pronounced for insider CEOs who wield greater power. We further document that the association is stronger if CEOs have a financial background. To further explore the underlying mechanism, we test whether the association is driven by earnings management or firms’ business strategies. Our results show that the effect of CEO succession origin on readability is primarily attributable to business strategies. We address endogeneity issues and check the robustness of our results in several ways. Finally, we document important policy implications emerging from our study.

The Impact of CEO Successions Involving a Change of Gender on Strategic Change: The Moderating Role of Environmental Factors

AbstractPrior research highlights the disruptive and detrimental effects of chief executive officer (CEO) successions that involve a change of gender, i.e., from a male CEO to a female CEO and vice versa. In contrast, we contend that the effects of CEO successions with gender change depend on the context in which they take place. Drawing on expectation states theory, we identify contexts in which each type of CEO succession with gender change can have positive effects on strategic change and subsequent firm performance, depending on whether the degree of gender parity in the context is sufficient for the new CEO to enact strategic changes. Consistent with our arguments, we report findings from Chinese and US samples showing that in the presence of high environmental dynamism female‐to‐male CEO succession yields greater strategic change. Conversely, when environmental dynamism is low, it is male‐to‐female CEO succession that brings about greater strategic change. Furthermore, in the Chinese context, we found that female‐to‐male CEO succession in state‐owned companies results in greater strategic change, whereas male‐to‐female CEO succession has the same effect in privately‐owned settings. Moderated mediation analysis showed that the significant interaction effects on strategic change affect long‐term downstream performance (i.e., Tobin's Q). We discuss implications for theory and practice related to CEO successions.

The pitfalls of corporate social irresponsibility: Hypocrisy of family firms in South Korea

Corporate hypocrisy poses a significant risk to businesses striving for sustainable management. Stakeholders' increasing interest in ESG (environmental, social, and governance) activities and easy access to information makes maintaining authenticity essential. Any firm caught in hypocrisy risks losing stakeholder trust and damaging its legitimacy. Family firms willing to preserve socioemotional wealth are more susceptible to hypocrisy than general firms due to the family’s significant influence on decision-making, including CEO (chief executive officer) turnover and legitimacy crises. This study examined the impact of CSIR (corporate social irresponsibility) on sustainability in two South Korean companies and assessed how internal factors (e.g., CEO turnover and succession) and external factors (e.g., market competition and environmental dynamism) influenced them. To this end, we employed a case study as the central methodology and conducted text mining, interviews, and financial analysis through content analysis. Our first finding is that CSIR negatively affects financial and non-financial performance in family firms. Second, family firms must make genuine efforts to restore their legitimacy. As per the moderation effect of CEO succession, the pivotal consideration is appointing an external CEO rather than whether the subsequent CEO is a family member. Beta chose an external CEO who was a family member, while Alpha selected a long-time company insider who was not a family member as the succeeding CEO. Alpha, which designated an internal nonfamily CEO after the CEO succession, demonstrated a financial performance resilience inferior to Beta. Third, firms must communicate promptly with stakeholders in external conditions. With internationalization and digitalization, stakeholders enjoy a greater array of choices, and the evolution of public media has heightened the prominence of CSIR. The diminishing reliance of stakeholders on a particular company, the active articulation of opinions, and enhanced knowledge magnify the impact of a company’s CSIR on the sustainability of family firms.

CEO successions in times of decline and prosperity: restoring aspiration and performance implications in family firms

PurposeThe aim of this paper is to develop and test a behavioral theory of chief executive officer (CEO) succession and its performance consequences in family firms. Building upon performance feedback and slack research, the study hypothesizes that the effect of selecting a non-family outsider CEO on post-succession firm performance is contingent upon pre-succession firm performance aspirations level and the available slack resources.Design/methodology/approachThe hypotheses are tested using a panel of 430 CEO successions in Italian family firms.FindingsThe findings show that a non-family outsider CEO is particularly valuable when performance resides far below aspiration levels, and there is a high availability of slack resources.Originality/valueThe study provides novel insights of the benefits and drawbacks of selecting non-family outsider CEOs offering behavioral-based theoretical explanations of performance consequences of CEO successions.

The Impact of CEO Change on Enterprise Performance

The chief executive officer (CEO) is the enterprise's leader and plays a crucial role in business growth. Thus, the impact of the CEO changeover on the company and the selection of a suitable replacement are equally crucial considerations. This research utilizes data from Shanghai and Shenzhen-listed corporations. Using China's shares from 2010 to 2019 as the primary sample and earnings per share (EPS) as the performance indicator, we examine the influence of CEO turnover and succession sources on the company's performance. This research examines the pertinent literature and concludes that there are numerous elements that influence corporate performance, such as CEO turnover, firm size, debt ratio, etc. Several control variables are selected to develop an econometric model in order to control the influence of other factors affecting independent variables and dependent variables. This paper focuses on empirical analysis, does descriptive statistical analysis and multiple regression analysis, and employs the PSM-DID model for robustness testing in order to investigate the effect of CEO change on firm performance. After accounting for the endogenous or self-selection bias of the control sample, the study indicated that CEO turnover has a detrimental effect on company performance. From the standpoint of succession types, the corporate performance of listed companies with external successors is inferior to that of publicly traded companies with internal successors. On the basis of the above empirical findings, this study makes related recommendations for the current corporate management practice in China.

Do Co-opted Boards Affect the Financial Performance of Insurance Firms?

AbstractWe examine the performance-effects of Chief Executive Officer (CEO) co-opted boards in United Kingdom (UK) property-casualty insurers. We report that board insiders appointed in the aftermath of CEO succession reduce profitability, but bolster solvency. Enhanced solvency also results when the CEO is a financial expert and when proportionately more inside directors are selected by a CEO who is a financial expert. We further find enhanced profitability-effects for insurance experienced co-opted outside directors, while large investors improve solvency. However, the internal or external origin of the CEO does not affect financial outcomes. We consider that our results could have commercial and/or public policy implications.

Who is next? Consumer reaction to CEO succession in family firms

PurposeThis paper studies the impact of different chief executive officer (CEO) succession strategies on consumer evaluation of family firms. CEO succession is critical for family firms as improper succession planning has been shown to be the primary reason for high mortality rates of such firms. Furthermore, the choice of CEO (internal vs external) by family firms can send different signals to stakeholders and thereby impact their appraisal of such firms.Design/methodology/approachIn this paper, the authors use an experiment-based approach to test how the type of CEO succession (internal vs external) influences the consumer's evaluation of family firms.FindingsThe authors find that appointing an internal CEO leads to higher perception of firm capability, trust towards the firm and more favorable consumer attitudes. All these factors, in turn, lead to higher purchase intentions. External CEOs in family firms do not seem to have any de facto advantage regarding perceptions of higher capability.Originality/valueThus, the authors contribute to the literature of family firms by showing how family firm's strategic decisions during succession can affect consumer behavior.

When does CEO succession lead to strategic change? The mediating role of top management team replacement

While mandates for strategic change may accompany the selection of new Chief Executive Officer (CEOs), the broader set of leadership changes necessary for strategic change remains unclear. Motivated by upper echelons and resource dependence theories, direct relationships between three structural events associated with CEO succession and strategic change are examined, as well as whether these relationships are mediated by replacing top management team (TMT) members. Significant mediated relationships are found in which TMT replacement mediates the relationships of pre-succession firm performance and hiring an outsider as CEO with post-succession strategic change. Involuntary CEO turnover is found to be directly related to post-succession strategic change, with no significant mediating effects from TMT replacement. These findings suggest that boards seeking strategic change following a CEO succession should also consider TMT member succession, including whether CEO candidates can leverage their networks to attract new TMT members with human and social capital that supports strategic change objectives.

CEO Succession Roulette

Despite intense scrutiny from investors, markets, and regulators, many public companies have no formal succession plans. Anecdotal evidence links succession risk to significant value destruction, but there is limited academic research evaluating the effects of succession planning on chief executive officer (CEO) turnover outcomes. We provide evidence that succession planning reduces the cost of management transitions by improving their efficiency. Firms with succession plans experience not only lower uncertainty around turnover events but also a faster reduction in uncertainty over the incoming CEO’s tenure, consistent with faster learning about CEO-firm fit. Succession planning also raises the quality of the CEO-firm match, as evidenced by longer CEO tenure, and improves the board’s readiness to replace an underperforming CEO, increasing turnover performance sensitivity. This paper was accepted by Suraj Srinivasan, accounting. Supplemental Material: The data are available at https://doi.org/10.1287/mnsc.2022.4572 .

CEO labor market and R&D investment in high-technology firms: an empirical study on the disciplinary effect of CEO labor market

AbstractPrevious corporate governance research has paid little attention to the role of chief executive officer (CEO) labor markets in controlling CEO behaviors because the CEO labor market has been considered inefficient. With the increasing mobility of top executives across firms, however, the potential of CEO labor markets to serve as an external disciplining force has been growing. In this study, we argue that CEOs will be more pressured to engage in desirable behaviors as the CEO labor market becomes more efficient. Using a longitudinal sample of S&P 1500 firms in high-technology industries in United States from 2011 to 2019, we found that CEOs tend to increase R&D investment as CEO labor market supply increases. We also found that the tendency is greater when external CEO succession is more frequent in the market. Our results demonstrate that CEO labor markets have the potential to function as an effective external governance mechanism.

"Burnt by the spotlight": How leadership endorsements impact the longevity of female leaders.

Women entering leadership positions such as the Chief Executive Officer (CEO) role face barriers in the form of pervasive stereotypic expectations by which stakeholders implicitly evaluate their effectiveness. In this study, we examine the effects that a widely used organizational practice-leadership endorsements in the CEO succession announcement-has on female CEOs' longevity in the CEO role. In particular, we theorize that the leadership endorsements of incoming female CEOs that highlight their past achievements and competence violate stakeholders' prescriptive stereotypes, thereby increasing the likelihood of stakeholders viewing the female leaders through a stereotypical lens. Therefore, though well intentioned, leadership endorsements in female CEOs' succession announcements foment a stereotype threat situation that is likely to have long-term negative consequences for female leaders. We investigate and find support for this relationship using archival data for a sample of 91 female CEO successions among S&P 1500 and Fortune 500 firms between 1995 and 2012. Several post hoc analyses, including in-depth interviews with 31 female executives, further strengthen our findings and show that this effect does not occur among male CEO succession events. We also find that two key facets of the succession context work to ameliorate this negative relationship: the insider status of the female CEO and the number of female executives at the focal firm. Our findings suggest that ostensibly gender-neutral practices can have unintended negative consequences for female leaders. We conclude with a discussion of the theoretical and practical implications of our findings. (PsycInfo Database Record (c) 2021 APA, all rights reserved).

CEO succession game in family firms: Owners vs. advisors

ABSTRACT Succession in family firms is an extremely difficult and complex event in which advisors are often involved or sought. Advisors, especially business consultants, frequently play an important role in shaping and guiding such complex strategic processes. Nevertheless, it is not clear whether and to what extent the involvement of advisors, especially business consultants, in family firm succession impact the outcome of succession planning processes, such as the choice of the next chief executive officer (CEO). We explore whether family-owner socioemotional wealth, measured through their level of commitment to the firm, influences the preference for a family CEO versus a nonfamily CEO and acceptance of the advisor role in the succession planning process. We test the research questions on a sample of family firms located in the United States.

CEO succession origin, audit report lag, and audit fees: Evidence from Iran

This study examines whether chief executive officer (CEO) succession origin (hiring an insider CEO versus an outsider CEO) is associated with audit report lag (ARL) and audit fees in the Iranian setting, which is characterized by less-developed corporate governance mechanisms and a constrained audit market. Using a sample of firms listed on the Tehran Stock Exchange between 2007 and 2017 and three proxies for ARL, I find that audit report delay is longer if the CEO is promoted from within the firm. Furthermore, audit fees are higher for firms promoting an insider to the CEO position than for firms hiring outsider CEOs. Further analyses show that the positive effects of insider CEOs on ARL and audit fees are more pronounced when firms are audited by private audit firms. The results remain robust after controlling for firm-level fixed effects, addressing endogeneity issue, and running several sensitivity tests. This study contributes to the literature by providing new empirical evidence concerning the effect of CEO succession origin on corporate audit outcomes in an emerging economy setting. The findings of this study suggest that the implications of CEO succession origin for auditors can differ between emerging and developed economies.

A game of thrones—Dynamics of internal CEO succession and outcome

AbstractWe examine the implications of chief executive officer (CEO) succession methods for firm outcomes and executive incentives. Focusing on internal CEO successions, we find that the largest U.S. firms typically rely on two types of succession methods, namely, heir apparent and horse race successions. Although heir apparent and horse race CEO candidates have similar qualifications, the consequences of these two succession methods differ significantly. We find that horse race successions induce conflict and are detrimental to firm performance but not necessarily to the newly appointed CEOs. Our findings suggest succession method influences firm performance, executive incentives and CEO labour markets.

Earnings management around founder CEO reappointments and successions in family firms

AbstractThis paper studies reappointment of a chief executive officer (CEO) and succession events in listed family firms with an incumbent family CEO. We explore whether family firms with a founder CEO are more likely to engage in earnings management preevent than other family firms. We find evidence of preevent upward earnings management for firms that reappoint their founder CEO but no for other family firms. These findings suggest that the costs and benefits from earnings management change around founder CEO reappointments in family firms. Investors, auditors, policymakers and regulators should be aware of the temptation of founder CEOs to inflate earnings preceding their reappointment.

Chief Executive Officer Succession and Board Decision Making: Review and Suggestions for Advancing Industrial and Organizational Psychology, Human Resources Management, and Organizational Behavior Research

We conduct a comprehensive review of the chief executive officer (CEO) succession literature and update a CEO succession typology that incorporated manuscripts published through 2014. Our review illustrates that most of our understanding of succession and related processes stems from research based primarily in macro research traditions. We highlight ways that scholars can develop deeper understandings of CEO successionprocesses by capitalizing on knowledge and practices that are visible from more micro lenses such as industrial and organizational (IO) psychology, human resources (HR), and organizational behavior (OB). Specifically, we advocate applying lessons about recruitment, training, fit, culture, selection, turnover, human capital resources, and decision making from IO psychology, HR, and OB research to extend our understanding about CEO succession and board decision making.

Impact of Chief Executive Officer (CEO) Succession Policy on CEO Turnover Announcement in Malaysia

This paper presents a fresh perspective on chief executive officer (CEO) turnover, where the impact of CEO turnover on firm value is analysed based on whether the removal is planned or unplanned. A total of 146 announcements for ten years in Malaysia is examined using an event study method. The results indicate that, in general, CEO turnover announcements cause a significant reaction due to changes in the firm’s investment decisions. Specifically, a significant positive impact exists when CEO turnover occurs as planned. In a planned turnover, the negative news of the removal of the CEO is immediately minimised with the positive news of a CEO appointment, indicating the positive impact of establishing a CEO succession plan on firm value. This finding adds new knowledge to the current literature and allows policymakers to examine the establishment of a CEO succession policy.

Signaling a successor? A theoretical and empirical analysis of the executive compensation‐chief executive officer succession relationship

AbstractResearch SummaryExtant research rarely explores the relationship between executive compensation and chief executive officer (CEO) succession planning, despite practitioner claims that executive pay disparities indicate succession planning (in)effectiveness. Leveraging signaling theory, we use 830 succession events from 2010 to 2017 to show that pay disparity between the CEO and the highest paid non‐CEO executive is positively related to the likelihood of outside CEO succession. Thus, boards need to be aware of the implications of possible unintentional signals sent via executive compensation decisions. We do not find evidence of an interactive effect when compensation and CEO succession are co‐managed using linking pin directors—directors with compensation and CEO succession responsibilities—but supplemental analyses suggest a positive main effect of linking pin directors on the likelihood of inside CEO succession.Managerial SummaryPowerful watchdog agencies assert that high pay differences between a firm's CEO and its next highest paid executive (CEO–HPE pay disparity) indicate succession planning challenges. This assertion has profound implications for stakeholders, but evidence supporting it is unclear. Our study examines the relationship between CEO–HPE pay disparity and the board's choice of an outside CEO, an indicator of ineffective succession planning. We find evidence that higher pay disparity signals an increased likelihood of choosing an outside CEO successor. We also find that boards who co‐manage compensation and succession may be more likely to hire an inside CEO successor. Our findings suggest that boards need to understand how compensation decisions may be inadvertently signaling future CEO succession choices.

Demonstrating the interconnection of hierarchical order disturbances in CEO succession with corporate social responsibility and environmental sustainability

AbstractThis study contemplates the negative interconnection between hierarchical order disturbance in chief executive officer succession and corporate social responsibility. The study contributes while formulating corporate social responsibility ratio index, hierarchical order disturbances, and hierarchical order disturbance intensity. Significantly, corporate social responsibility index has been formulated through demonstrating 13 attributes constituting the GRI sustainable and environmental sustainable development reports. We have analyzed the data of 2,644 listed firms for the years 2014–2018. 2SLS instrumental regression and GMM techniques have been executed for confirmation of the authenticity of the results. Empirical results enunciate that incumbent chief executive officers via hierarchical order disturbance having technical education are more orientated toward corporate social responsibility activities. It has been evaluated that medium and high hierarchical order disturbance and intensity in chief executive officers succession influence the corporate social responsibility activity negatively. Specifically, firms having large number of employees prefer to adopt activity. Conclusively, the role of independent directors has been contemplated as moderators while orientating the novel successor toward corporate social responsibility activity.

Can outside CEO successors bring innovation to firms? Evidence from China

PurposeThis paper aims to examine the effect of outside chief executive officer (CEO) succession on firm innovation in Chinese companies and to explore the mechanism behind the process. By analyzing the motivation of CEO successors of different origins in the context of selection, this paper identifies the factors affecting outside CEO successors’ decision-making on post-succession firm innovation.Design/methodology/approachA Poisson regression model is used on a sample of 1,084 firm-year observations taken from Chinese listed companies that endured CEO succession during the period of 2009–2016. Fixed-effect Poisson regression modeling was performed after likelihood ratio and Hausman testing to assess the robustness of the findings.FindingsThe results show that outside CEO successions are significantly and negatively associated with post-succession firm innovation. Moreover, the authors found a negative effect of outside CEO succession on post-succession firm innovation when the predecessor has a long tenure or the successor is older.Originality/value.This study contributes to the literature on CEO succession, CEO–board relationships and firm innovation by shedding light on how agency, human capital and career-concerning theories in the CEO selection context apply to corporate governance and strategy. Moreover, by exploring the factors influencing CEO successors’ decision-making in terms of firm innovation in the Chinese social and cultural context, this paper identifies ways to promote firm innovation for Chinese companies from the concept of leadership succession.