APPLIED ECONOMICS AND POLICY


CEO Succession Roulette Management Science, 69, 10, October 2023 LINK TO PAPER LINK TO VIDEO


DRAGANA CVIJANOVIC ASSOCIATE PROFESSOR


Cornell Peter and Stephanie Nolan School of Hotel Adminstration


Cornell SC Johnson College of Business Cornell University


Co-authors • Dragana Cvijanovic


Associate Professor, Cornell Peter and Stephanie Nolan


School of Hotel Administration, Cornell SC Johnson College of Business, Cornell University


• Nickolay Gantchev, Warwick Business School, University of Warwick • Rachel Li, U.S. Securities and Exchange Commission


Summary


Despite intense scrutiny from investors, markets, and regulators, many public companies have no formal succession plans, even though this is a key respon- sibility of corporate boards. Te Securities and Exchange Commission (SEC) views poor succession planning as “a significant business risk,” and anecdotal evidence links succession risk to significant value destruction. Yet limited ac- ademic research exists evaluating the effects of succession planning on chief executive officer (CEO) turnover outcomes.


In this paper, Cvijanovic et al. study the effects of formal succession planning on leadership stability and the efficiency of CEO turnover decisions. Using hand-collected data from regulatory filings to identify a firm’s first disclosure of a succession plan and manually verifying whether subsequent turnover events adhere to the pre-disclosed succession guidelines, they provide evi- dence that succession planning reduces the cost of management transitions by improving their efficiency, reducing the likelihood of forced CEO turnovers and uncertainty around transitions, the incidence of interim CEO appoint- ments, and the frequency of non-CEO executive departures. Teir results also demonstrate a positive impact of succession planning by improving the quali- ty of the match between the firm and the incoming CEO. Succession planning also helps CEO dismissal decisions by raising the board’s preparedness to remove an underperforming CEO.


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RESEARCH WITH IMPACT: CORNELL SC JOHNSON COLLEGE OF BUSINESS • 2023 EDITION


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