“May the road ahead be smooth”: Cultural continuity and CEO succession

This paper studies the cultural continuity between consecutive CEOs by examining its role in CEO selection and its effects on post-turnover outcomes. Using the epidemiological approach to identify cultural heritage and the Hofstede dimensions to measure cultural distance, we find that firms tend to preserve cultural continuity by favoring candidates who are culturally closer to the outgoing CEO. We also observe that cultural distance tends to be smaller in voluntary turnovers, inside successions, and firms with better pre-turnover performance. In examining post-turnover outcomes, we find that smaller CEO cultural distance is associated with fewer executive departures, less investment restructuring, smaller increase in volatility, and better performance after the turnover. Our results highlight CEO cultural continuity as a smoothing mechanism that supports leadership and strategic stability during CEO transitions.