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

Gonul Colak; Eva Liljeblom

doi:10.1016/j.jfs.2022.101072

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

Gonul Colak^*, Eva Liljeblom

^*Corresponding author for this work

Finance, Helsinki

Research output: Contribution to journal › Article › Scientific › peer-review

5 Citations (Scopus)

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.

Original language	English
Article number	101072
Peer-reviewed scientific journal	Journal of Financial Stability
Volume	63
Number of pages	20
ISSN	1572-3089
DOIs	https://doi.org/10.1016/j.jfs.2022.101072
Publication status	Published - 23.09.2022
MoE publication type	A1 Journal article - refereed

Keywords

512 Business and Management
Corporate Governance
Managerial tenure
CEO tenure
CEO term limits
restructuring costs
shareholder value
firm performance
hazard model

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

Access to Document

10.1016/j.jfs.2022.101072Licence: CC BY

Main_Text_Managerial_Tenure_August25_2022Accepted author manuscript, 177 KBLicence: CC BY-NC-ND
Online Appendix_March12_2022Accepted author manuscript, 117 KBLicence: CC BY-NC-ND
1-s2.0-S1572308922000936-mainFinal published version, 850 KBLicence: CC BY

OpenUrl availability

Full text

Cite this

@article{c5bad343f24c485fb3b159ce46094383,

title = "Easy cleanups or forbearing improvements: The effect of CEO tenure on successor{\textquoteright}s performance",

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{\textquoteright}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. ",

keywords = "512 Business and Management, Corporate Governance, Managerial tenure, CEO tenure, CEO term limits, restructuring costs, shareholder value, firm performance, hazard model",

author = "Gonul Colak and Eva Liljeblom",

note = "Publisher Copyright: {\textcopyright} 2022 The Authors",

year = "2022",

month = sep,

day = "23",

doi = "10.1016/j.jfs.2022.101072",

language = "English",

volume = "63",

journal = "Journal of Financial Stability",

issn = "1572-3089",

publisher = "Elsevier",

}

TY - JOUR

T1 - Easy cleanups or forbearing improvements

T2 - The effect of CEO tenure on successor’s performance

AU - Colak, Gonul

AU - Liljeblom, Eva

PY - 2022/9/23

Y1 - 2022/9/23

N2 - 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.

AB - 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.

KW - 512 Business and Management

KW - Corporate Governance

KW - Managerial tenure

KW - CEO tenure

KW - CEO term limits

KW - restructuring costs

KW - shareholder value

KW - firm performance

KW - hazard model

UR - https://www.mendeley.com/catalogue/82db3fd5-218f-34cf-81fe-38bed5639de6/

UR - http://www.scopus.com/inward/record.url?scp=85138352755&partnerID=8YFLogxK

U2 - 10.1016/j.jfs.2022.101072

DO - 10.1016/j.jfs.2022.101072

M3 - Article

SN - 1572-3089

VL - 63

JO - Journal of Financial Stability

JF - Journal of Financial Stability

M1 - 101072

ER -

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

Abstract

Keywords

UN SDGs

Access to Document

OpenUrl availability

Other files and links

Fingerprint

Cite this