CEO turnover, leadership vacuum, and stock market reactions

Jihun Bae and Jeong Hwan Joo

Applied Economics, 2021, vol. 53, issue 58, 6752-6769

Abstract: CEO departures with a delay in successor appointment create a leadership vacuum inducing operational disruption and strategic uncertainty. Such departures also produce turnaround benefits from cutting ties with a poorly performing CEO and by allowing additional time to search for a qualified successor. Prior studies fail to disentangle these perceived costs and benefits associated with CEO dismissal. After filtering out the turnaround benefits, we find that the market reacts incrementally negatively to CEO departure announcements with a delay in successor appointment than those without such delay, capturing incremental switching costs caused by a leadership vacuum. We also find that the leadership vacuum cost is larger in a more volatile environment or with abandonment of a relay succession plan. Our findings contribute to CEO turnover literature by suggesting that a temporary leadership vacuum is an indicator of abandonment of a succession plan that has been influenced by a poorly performing CEO and that such abandonment creates an opportunity to achieve performance turnaround through a better successor.

Date: 2021
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://hdl.handle.net/10.1080/00036846.2021.1927969 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:applec:v:53:y:2021:i:58:p:6752-6769

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAEC20

DOI: 10.1080/00036846.2021.1927969

Access Statistics for this article

Applied Economics is currently edited by Anita Phillips

More articles in Applied Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().