Open AccessDoes Lead Time in CEO Succession Matter? Evidence From Planned Versus Unexpected CEO Departures
Author(s) -
Mia L. Rivolta
Publication year - 2018
Publication title -
international journal of financial research
Language(s) - English
Resource type - Journals
eISSN - 1923-4031
pISSN - 1923-4023
DOI - 10.5430/ijfr.v9n3p1
Subject(s) - lead (geology) , lead time , stock (firearms) , ecological succession , business , monetary economics , economics , marketing , mechanical engineering , ecology , geomorphology , engineering , biology , geology
This paper investigates whether and how lead time in CEO succession matters by comparing disruption costs in firms with planned retirements to those with unexpected CEO departures due to death or illness. Using a comprehensive manually-collected dataset of CEO turnovers from 1999 to 2008, I find evidence that firms with planned CEO retirements have significantly longer lead time and lower disruption costs. Specifically, longer lead time is associated with more favorable cumulative stock performance and firm operating performance around the outgoing CEO’s departure. In fact, firms can save approximately $136 million when there is lead time to plan for succession.