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

Colak, Gonul and Liljeblom, Eva LU (2022) In Journal of Financial Stability 63.
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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author
and
organization
publishing date
type
Contribution to journal
publication status
published
subject
keywords
CEO tenure, CEO term limits, Firm performance, Hazard model, Restructuring costs, Shareholder value
in
Journal of Financial Stability
volume
63
article number
101072
publisher
Elsevier
external identifiers
  • scopus:85138352755
ISSN
1572-3089
DOI
10.1016/j.jfs.2022.101072
language
English
LU publication?
yes
id
9af08861-a53b-47e6-b445-eb8c16d7254a
date added to LUP
2022-12-02 13:57:18
date last changed
2025-04-04 14:53:25
@article{9af08861-a53b-47e6-b445-eb8c16d7254a,
  abstract     = {{<p>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.</p>}},
  author       = {{Colak, Gonul and Liljeblom, Eva}},
  issn         = {{1572-3089}},
  keywords     = {{CEO tenure; CEO term limits; Firm performance; Hazard model; Restructuring costs; Shareholder value}},
  language     = {{eng}},
  month        = {{12}},
  publisher    = {{Elsevier}},
  series       = {{Journal of Financial Stability}},
  title        = {{Easy cleanups or forbearing improvements : The effect of CEO tenure on successor's performance}},
  url          = {{http://dx.doi.org/10.1016/j.jfs.2022.101072}},
  doi          = {{10.1016/j.jfs.2022.101072}},
  volume       = {{63}},
  year         = {{2022}},
}