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

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  • Colak, Gonul
  • Liljeblom, Eva

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.

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  • Colak, Gonul & Liljeblom, Eva, 2022. "Easy cleanups or forbearing improvements: The effect of CEO tenure on successor’s performance," Journal of Financial Stability, Elsevier, vol. 63(C).
    • Handle: RePEc:eee:finsta:v:63:y:2022:i:c:s1572308922000936
    DOI: 10.1016/j.jfs.2022.101072
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    More about this item

    Keywords

    CEO tenure; CEO term limits; Restructuring costs; Shareholder value; Firm performance; Hazard model;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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