The impact of CEO turnover on firm performance around interim successions
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The impact of CEO turnover on firm performance around interim successions Vincent J. Intintoli • Andrew Zhang Wallace N. Davidson III
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Ó Springer Science+Business Media New York 2012
Abstract Prior research reports that financial performance of firms that hire interim CEO successors is worse following interim CEO appointments than those that hire permanent successors. We find that this underperformance occurs only following voluntary turnover interim appointments, which represent a small fraction of all voluntary turnovers and roughly a quarter of all interim appointments. We do not observe poor performance when boards hire interim successors following instances of forced departure. Further analysis shows that poor performance during voluntary turnover interim successions are limited to using operating performance measures; market performance is not significantly worse following interim successions. Our results indicate that many interim appointments should not be viewed as value decreasing endeavors and future research on post-succession financial performance should consider the circumstances surrounding the turnover of the predecessor. Keywords
CEO turnover Interim succession Corporate governance
CEO turnover and succession have been extensively studied in the management, finance, accounting, and economics literature. In most succession events, boards announce a permanent replacement for the departing CEO, and the focus of virtually V. J. Intintoli W. N. Davidson III (&) College of Business, Southern Illinois University Carbondale, Carbondale, IL 62901, USA e-mail: [email protected] V. J. Intintoli e-mail: [email protected] A. Zhang College of Business, The University of Nevada Las Vegas, Las Vegas, NV 89154, USA e-mail: [email protected]
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all succession studies has been on permanent replacements. One notable exception is Ballinger and Marcel (2010), who examine the post-succession performance consequences for firms whose boards install an interim successor to replace the departing CEO. Their results suggest that firm performance is lower following an interim appointment when compared to a permanent successor appointment. However, Ballinger and Marcel (2010) do not directly account for whether the firm initiated a forced or voluntary turnover. This issue is important because the nature of the predecessor’s departure influences board’s decision on the succession process.1 Moreover, existing empirical evidence shows that the nature of the turnover can have a strong influence on post-turnover firm performance.2 Differences in performance following forced and voluntary departures will likely coincide with the tenure of an interim successor and therefore, may have an influence on the perceived effectiveness of the interim’s performance. It is therefore important to take into consideration the disposition of the turnover when examining the influence of an interim succession. In this paper we propose that the conditions surrounding the turnover of the predec
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