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

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
Pages (from-to)	1-54
Number of pages	54
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

Areas of Strength and Areas of High Potential (AoS and AoHP)

AoS: Financial management, accounting, and governance

UN SDGs

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

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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. ",

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

Abstract

Keywords

Areas of Strength and Areas of High Potential (AoS and AoHP)

UN SDGs

Access to Document

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Cite this