CEO Replacement in Turnaround Situations: Executive (Mis)Fit and Its Performance Implications

Countering the widely-held view that CEO succession is generally beneficial in turnaround situations, we adopt an executive fit/refit logic, proposing that the implications of CEO replacement depend integrally on the incumbent’s degree of misfit and the successor’s degree of fit to the contextual conditions at hand. Drawing from prior turnarounds research, we identify several prominent forms of CEO fit/misfit that are especially germane for troubled firms. In testing our hypotheses, we find substantial support for the fit/refit theory: Troubled companies have substantially better performance to the extent that they replace incumbents who are poorly suited to the conditions at hand, and when they appoint new CEOs who are well matched to those conditions. Further reaffirming the fit/refit model, we find that CEO replacement, per se, has no general effect on the improvement of troubled firms.