Social connections, CEO turnover and corporate policy change

Prabashi Dharmasiri

Australian Journal of Management, 2023, vol. 48, issue 3, 567-595

Abstract: We examine how social connections between successive CEOs influence policy changes enacted by incoming CEOs. Using forced turnovers, we document fewer policy changes when incoming CEOs are connected to outgoing CEOs. Our results remain consistent when exposed to tests assessing endogeneity concerns such as omitted variables, selection biases and homophily concerns. We find that the reduction in policy changes is more prominent when social ties are stronger due to greater association between the individuals. Analyses further reveal that such limited policy changes enacted by connected incoming CEOs could deteriorate firm performance, highlighting the potential importance of the findings in the CEO selection process. JEL Classification: D91, J63, M12

Keywords: CEO turnover; corporate strategy; social connection (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:sae:ausman:v:48:y:2023:i:3:p:567-595

DOI: 10.1177/03128962221126555

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