CEO identity and labor contracts: Evidence from CEO transitions

Laurent Bach and Nicolas Serrano-Velarde

Journal of Corporate Finance, 2015, vol. 33, issue C, 227-242

Abstract: This paper assesses how CEO transitions shape labor contracts within firms. We argue that family links between a new CEO and his predecessor act as a commitment device for upholding implicit contracts with the workforce. Consistent with this view, we find evidence of a wage insurance mechanism during a CEO transition. Dynastically-promoted CEOs relative to external CEOs are associated with up to 25% less job separations and 20% lower wage growth. Crucially, we show that differences, in terms of job separations, between dynastic and non-dynastic CEO successions are significantly greater when labor markets are more frictional.

Keywords: CEO choice; Dynastic management; Labor contracts (search for similar items in EconPapers)
JEL-codes: D23 G34 J33 J53 M14 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (33)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:33:y:2015:i:c:p:227-242

DOI: 10.1016/j.jcorpfin.2015.01.009

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