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CEO identity and labor contracts: Evidence from CEO transitions

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  • Bach, Laurent
  • Serrano-Velarde, Nicolas

Abstract

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.

Suggested Citation

  • Bach, Laurent & Serrano-Velarde, Nicolas, 2015. "CEO identity and labor contracts: Evidence from CEO transitions," Journal of Corporate Finance, Elsevier, vol. 33(C), pages 227-242.
  • Handle: RePEc:eee:corfin:v:33:y:2015:i:c:p:227-242 DOI: 10.1016/j.jcorpfin.2015.01.009
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    References listed on IDEAS

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    Cited by:

    1. repec:eee:corfin:v:46:y:2017:i:c:p:461-476 is not listed on IDEAS
    2. Bjuggren, Carl Magnus, 2015. "Sensitivity to shocks and implicit employment protection in family firms," Journal of Economic Behavior & Organization, Elsevier, vol. 119(C), pages 18-31.
    3. Bennedsen, Morten & Fan, Joseph P.H. & Jian, Ming & Yeh, Yin-Hua, 2015. "The family business map: Framework, selective survey, and evidence from Chinese family firm succession," Journal of Corporate Finance, Elsevier, vol. 33(C), pages 212-226.
    4. D'Aurizio, Leandro & Oliviero, Tommaso & Romano, Livio, 2015. "Family firms, soft information and bank lending in a financial crisis," Journal of Corporate Finance, Elsevier, pages 279-292.
    5. repec:kap:jbuset:v:146:y:2017:i:3:d:10.1007_s10551-015-2937-1 is not listed on IDEAS
    6. Andrea Bassanini & Giorgio Brunello & Eve Caroli, 2017. "Not in My Community: Social Pressure and the Geography of Dismissals," Journal of Labor Economics, University of Chicago Press, vol. 35(2), pages 429-483.

    More about this item

    Keywords

    CEO choice; Dynastic management; Labor contracts;

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • J53 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Labor-Management Relations; Industrial Jurisprudence
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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