Stock Market Reactions and Firm Performance Surrounding CEO Succession: Antecedents of Succession and Successor Origin

Jong C. Rhim, Joy V. Peluchette and Inam Song

American Journal of Business, 2006, vol. 21, issue 1, pages 21-30

Abstract: This study investigates the effects of CEO succession on the stock and Þnancial performance of large publicly held corporations over the years 1977-1994. Using a market signaling framework, this study examines how the stock market responds to the expected Þnancial performance of the Þrm at the announcement of CEO succession. The impact of successor origin of the CEO on the Þnancial performance of the Þrm is also investigated. Findings indicate that the stock market responded more favorably to the announcement of succession caused by unanticipated events than to announcements of anticipated succession. Although successions resulted in signiÞcant improvement in some aspects of Þnancial performance, the Þndings could not be generalized across all Þnancial performance measures. However, those Þrms with inside CEO succession performed generally better than those Þrms utilizing outside succession with respect to operations and profitability.

Keywords: CEO succession; Financial performance; Financial performance measures; Market signaling framework; Stock (search for similar items in EconPapers)
JEL-codes: R00 Z0 (search for similar items in EconPapers)
Date: 2006
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