CEO Succession Roulette

Despite intense scrutiny from investors, markets, and regulators, many public companies have no formal succession plans. Anecdotal evidence links risk to significant value destruction, but there is limited academic research evaluating the effects of planning on chief executive officer (CEO) turnover outcomes. We provide that reduces cost management transitions by improving their efficiency. Firms with plans experience not only lower uncertainty around events also a faster reduction in over incoming CEO’s tenure, consistent learning about CEO-firm fit. Succession raises quality match, as evidenced longer CEO improves board’s readiness replace an underperforming CEO, increasing performance sensitivity. This paper was accepted Suraj Srinivasan, accounting.