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Heir to the Throne: Choice of the Replacement CEO After Unexpected CEO Turnovers

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  • Mia L. Rivolta

Abstract

This paper analyzes firms¡¯ choice of replacement CEOs after unexpected CEO turnovers, and the impact of the replacement decision on shareholder wealth. More specifically, I investigate whether the selection of replacement CEOs from the board facilitates a smoother leadership transition. I find that while selecting replacement CEO from existing board members allows the company to quickly fill the CEO position, thereby reducing uncertainty and transitional costs (measured by new CEO turnover, senior management turnover and delay), it may not be beneficial to shareholders. I provide evidence that replacing departing CEO with a board member is negatively associated with stock performance for up to two years. This paper is a step forward towards the understanding of the roles boards play in the CEO succession and new CEO hiring process.

Suggested Citation

  • Mia L. Rivolta, 2018. "Heir to the Throne: Choice of the Replacement CEO After Unexpected CEO Turnovers," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 9(2), pages 172-190, April.
    • Handle: RePEc:jfr:ijfr11:v:9:y:2018:i:2:p:172-190
    DOI: 10.5430/ijfr.v9n2p172
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