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

Gonul Colak*, Eva Liljeblom

*Corresponding author for this work

Research output: Contribution to journalArticleScientificpeer-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 languageEnglish
Article number101072
Peer-reviewed scientific journalJournal of Financial Stability
Volume63
Pages (from-to)1-54
Number of pages54
ISSN1572-3089
DOIs
Publication statusPublished - 23.09.2022
MoE publication typeA1 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

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