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CEO Succession Roulette

Author

Listed:
  • Dragana Cvijanović

    (Applied Economics and Policy, Cornell SC Johnson College of Business, Ithaca, New York 14853)

  • Nickolay Gantchev

    (Finance Group, Warwick Business School, University of Warwick, Coventry CV4 7AL, United Kingdom; Centre for Economic Policy Research, London EC1V 0DX, United Kingdom; European Corporate Governance Institute, 1000 Brussels, Belgium)

  • Rachel Li

    (Economics, Finance and Legal Studies, Culverhouse College of Business, The University of Alabama, Tuscaloosa, Alabama 35487)

Abstract

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.

Suggested Citation

  • Dragana Cvijanović & Nickolay Gantchev & Rachel Li, 2023. "CEO Succession Roulette," Management Science, INFORMS, vol. 69(10), pages 5794-5815, October.
    • Handle: RePEc:inm:ormnsc:v:69:y:2023:i:10:p:5794-5815
    DOI: 10.1287/mnsc.2022.4572
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