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Powerful CEOs and their legacy: Evidence from credit risk around CEO turnovers

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  • Braga-Alves, Marcus V.
  • Ismailescu, Iuliana
  • Sen, Kaustav

Abstract

In this study, we examine how changes in credit risk around CEO turnover announcements are affected by the nature of the succession (forced vs. voluntary), outgoing CEO’s legacy, and concentration of job titles. We find that firms whose incumbent is forced out experience a greater increase in credit default swap (CDS) spreads than firms with voluntary departures, especially when the influence of the outgoing CEO lingers or the CEO is powerful. These results provide new insights into sources of uncertainty around CEO turnovers and extend the literature on the determinants of CDS spreads around this corporate event.

Suggested Citation

  • Braga-Alves, Marcus V. & Ismailescu, Iuliana & Sen, Kaustav, 2022. "Powerful CEOs and their legacy: Evidence from credit risk around CEO turnovers," The Quarterly Review of Economics and Finance, Elsevier, vol. 84(C), pages 345-358.
    • Handle: RePEc:eee:quaeco:v:84:y:2022:i:c:p:345-358
    DOI: 10.1016/j.qref.2020.10.008
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    More about this item

    Keywords

    Credit default swaps; Credit risk; CEO turnover; CEO legacy; Powerful CEO;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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