Research Seminar: Dragana Cvijanovic, University of North Carolina at Chapel Hill

Abstract: Using hand-collected data on succession planning disclosures in a comprehensive sample of public firms undergoing management transitions over 1993-2010, we provide novel evidence on the role of formal succession planning in CEO turnover decisions. First, succession planning ensures leadership continuity by reducing the likelihood of forced CEO turnover, the incidence of non-CEO executive team resignations, and making the departing CEO an integral part of the transition process. Second, succession planning is associated with significantly lower stock return volatility surrounding CEO turnover as well as a much faster decline in volatility with the successor’s tenure, suggesting a fundamentally different nature of learning about CEO ability. Third, succession planning significantly improves the efficiency of executive transitions by raising turnover-performance sensitivity and allowing for proper filtering of industry factors in CEO dismissals. Finally, succession planning impacts CEO pay structure and reduces agency conflicts following CEO turnover.