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

6 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

UN SDGs

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

SDG 8 Decent Work and Economic Growth

Keywords

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

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Main_Text_Managerial_Tenure_August25_2022Auhor's accepted manuscript (AAM), 177 KBLicence: CC BY-NC-ND
Online Appendix_March12_2022Auhor's accepted manuscript (AAM), 117 KBLicence: CC BY-NC-ND
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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. ",

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

Abstract

UN SDGs

Keywords

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