Easy cleanups or forbearing improvements: The effect of CEO tenure on successor’s performance

Gönül Çolak · Eva Liljeblom

16 citations0/0 files storedJournal of Financial Stability

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Corporate Finance and Governance Corporate Insolvency and Governance Organizational Management and Leadership

Abstract

Long CEO tenure can harm firm performance even after the CEO is replaced. We analyze this issue by conditioning post-turnover firm performance on the length of the preceding CEO’s tenure. Identification comes from instrumenting sudden CEO deaths as an exogenous shock to tenure length. We find that when a successor takes over after a long-tenured CEO, operating performance and stock returns are significantly lower, restructuring costs are higher, “big baths” are larger, and firm recovery is slower. Weaker corporate governance and a long-tenured CEO with lower skills amplify these post-turnover effects.

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References

1988Management ownership and market valuation 2003Corporate Governance and Equity Prices 1990Additional evidence on equity ownership and corporate value 1988Outside directors and CEO turnover 2003Managing with Style: The Effect of Managers on Firm Policies 2008What Matters in Corporate Governance?1999Understanding the determinants of managerial ownership and the link between ownership and performance 1989Management entrenchment

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