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Market-Based Solutions to Vital Economic Issues
Research
Dec 4, 2017

Changing of the Guards: Does Succession Planning Matter?

Abstract

Using hand-collected data on succession planning disclosures, we study how having a formal succession plan affects the efficiency of CEO turnovers. We find that firms with succession plans have a lower likelihood of forced CEO turnovers and non-CEO executive team resignations. They also experience lower uncertainty around successions and faster learning about the incoming CEO’s ability. Additionally, these firms implement more sophisticated performance evaluation procedures and are less reliant on exogenous factors in making CEO dismissal decisions. These results are not explained by firm-specific attributes and demonstrate that succession planning leads to significant improvements in the efficiency of management turnovers.

Note: Research papers posted on SSRN, including any findings, may differ from the final version chosen for publication in academic journals.

 


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