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To get the best new CEO, must the old CEO go? Power distribution in external CEO successions
Author(s) -
Perry John T.,
Yao Xin,
Chandler Gaylen N.
Publication year - 2011
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.1551
Subject(s) - power (physics) , position (finance) , business , ecological succession , stock (firearms) , accounting , finance , engineering , physics , mechanical engineering , ecology , quantum mechanics , biology
When chief executive officers (CEOs) are replaced by external successors, they frequently retain high levels of power. We found that outgoing CEOs' announced post‐succession involvement is negatively related to their successors' power. Additionally, we found that the magnitude of the stock market reaction to succession announcements is greater when the outgoing CEOs are allowed to continue to retain significant influence, and diminished when the new CEOs are awarded significant position power when they become CEO. These results suggest that to improve long‐term performance, companies should keep outgoing CEOs around and not grant new CEOs too much power. Copyright © 2011 John Wiley & Sons, Ltd.