Top management team turnover, CEO succession type, and strategic change

a r t i c l e i n f o Keywords: Executive turnover Top management teams Strategic change Discontinued operations Power circulation theory While previous research suggests that CEO turnover correlates with strategic changes in firm's operations such as discontinuation of operations, we demonstrate that such findings apply only to specific types of CEO turnover, and only if non-CEO members of the top management team also exit the firm. Our analysis examines cases of contender, follower, and outsider succession and reinforces the key role of non-CEO departures in strategic change at a firm. The results support an integration of the upper echelons perspective and the power circulation theory view of top management team turnover. Research on top management teams (TMTs) recognizes that senior executives rarely work alone. The upper echelons perspective (Hambrick and Mason, 1984) argues that collective characteristics and actions of the TMT may affect organizational outcomes. However, studies of executive turnover in economics and finance typically pay exclusive attention to the CEO and firm performance measures (e.g. Huson et al., 2004). Less research in this literature focuses on strategic changes at the firm coinciding with CEO turnover. In one example, Weisbach (1995) explores the extent to which CEO turnover correlates with the divestitures of recently acquired divisions and concludes that the probability of exiting a line of business and divesting unsuccessful acquisitions is significantly higher with the dismissal of the CEO responsible for the acquisition. In order to complement the research on strategic changes at the time of top management turnover, our analysis exploits a large representative dataset that allows us to better identify the specific types of CEO turnover that correlate with changes at the firm, including joint turnover of the CEO and non-CEO members of the TMT. We use the accounting disclosure of discontinued operations – exiting a line of business – as a measure of strategic change in firm operations. Such a variable has been used previously in studies of escalation in managerial decisions (Statman and Sepe, 1989) and is similar in flavor to the variable considered by Weisbach (1995). Our analysis helps reveal a more focused relationship than has been previously documented. to the discussion of TMT turnover. In this view, there are three distinct types of CEO turnover — outsider succession, follower succession that includes insider CEO replacement appointed after a retirement of the outgoing CEO, and contender succession that includes insider …