Hostname: page-component-586b7cd67f-rdxmf Total loading time: 0 Render date: 2024-11-22T05:06:48.750Z Has data issue: false hasContentIssue false
  • English
  • Français

Does CEO Succession Planning (Disclosure) Create Shareholder Value?

Published online by Cambridge University Press:  11 April 2022

John J. McConnell  and
Qianru Qi Open the ORCID record for Qianru Qi [Opens in a new window]
John J. McConnell*
Affiliation:
Purdue University Krannert School of Management
Qianru Qi
Affiliation:
University of Ottawa Telfer School of Management [email protected]
*
[email protected] (corresponding author)
Rights & Permissions [Opens in a new window]

Abstract

Core share and HTML view are not available for this content. However, as you have access to this content, a full PDF is available via the ‘Save PDF’ action button.

Average cumulative abnormal returns around proxy statements containing “in-depth” disclosures of planning for CEO succession are significantly positive indicating that succession planning is a value-added undertaking. Exploiting a quasi-natural experiment based on a 2009 SEC ruling that induced more succession planning disclosures, we find that succession planning is not value-adding for all firms. Rather, succession planning is value-enhancing for larger, more complex, and more stable firms. Importantly, CEO succession planning appears to be value reducing for smaller, simpler, and less stable firms.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 57 , Issue 6 , September 2022 , pp. 2355 - 2384
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (https://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
Copyright
© The Author(s), 2022. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

An earlier draft of this article was previously circulated under the title “Just Talk? CEO Succession Plan Disclosure, Corporate Governance and Firm Value.” We thank Sergiy Chernenko, David Denis, Diane Denis, Mara Faccio, Kate Holland, Kose John, Ping Liu, Ron Masulis, Lalitha Naveen (the referee), Henri Servaes, Michael Woeppel, Deniz Yavuz, and David Yermack, and the participants at the 2019 Financial Management Association annual meeting for helpful comments and suggestions.

References

Adams, R. B., and Ferreira, D.. “Women in the Boardroom and Their Impact on Governance and Performance.” Journal of Financial Economics, 94 (2009), 291–309.CrossRefGoogle Scholar
Agrawal, A.; Knoeber, C. R.; and Tsoulouhas, T.. “Are Outsiders Handicapped in CEO Successions?” Journal of Corporate Finance, 12 (2006), 619–644.CrossRefGoogle Scholar
Anderson, R. W.; Bustamante, M. C.; Guibaud, S.; and Zervos, M.. “Agency, Firm Growth, and Managerial Turnover.” Journal of Finance, 73 (2018), 419–464.CrossRefGoogle Scholar
Barrett, A. “Does CEO Succession Planning Disclosure Matter?” Investor Responsibility Research Center Institute (2016).Google Scholar
Bebchuk, L.; Cohen, A.; and Allen Ferrell, A.. “What Matters in Corporate Governance?” Review of Financial Studies, 22 (2009), 783–827.CrossRefGoogle Scholar
Bennedsen, M.; Pérez‐González, F.; and Wolfenzon, D.. “Do CEOs Matter? Evidence from Hospitalization Events.” Journal of Finance, 75 (2020), 1877–1911.CrossRefGoogle Scholar
Berns, K., and Klarner, P.. “A Review of the CEO Succession Literature and a Future Research Program.” Academy of Management Perspectives, 31 (2017), 83–108.CrossRefGoogle Scholar
Boehmer, E.; Masumeci, J.; and Poulsen, A. B.. “Event-Study Methodology under Conditions of Event-Induced Variance.” Journal of Financial Economics, 30 (1991), 253–272.CrossRefGoogle Scholar
Burns, N.; Minnick, K.; and Starks, L.. “CEO Tournaments: A Cross-Country Analysis of Causes, Cultural Influences, and Consequences.” Journal of Financial and Quantitative Analysis, 52 (2017), 519–551.CrossRefGoogle Scholar
Bushman, R.; Dai, Z.; and Wang, X.. “Risk and CEO Turnover.” Journal of Financial Economics, 96 (2010), 381–398.Google Scholar
Cai, J., and Walkling, R. A.. “Shareholders’ Say on Pay: Does It Create Value?” Journal of Financial and Quantitative Analysis, 46 (2011), 299–339.CrossRefGoogle Scholar
Campbell, J. Y.; Lo, A. W.; and MacKinlay, A. C., eds. The Econometrics of Financial Markets, Vol. 2. Princeton, NJ: Princeton University Press (1997).CrossRefGoogle Scholar
Chu, J.; Faasse, J.; and Rau, P. R.. “Do Compensation Consultants Enable Higher CEO Pay? A Disclosure Rule Change as a Separating Device.” Management Science, 64 (2018), 4915–4935.CrossRefGoogle Scholar
Correa, R., and Lel, U.. “Say on Pay Laws, Executive Compensation, Pay Slice, and Firm Valuation Around the World.” Journal of Financial Economics, 122 (2016), 500–520.CrossRefGoogle Scholar
Council of Institutional Investors. Corporate Governance Policies (2017).Google Scholar
Cvijanovic, D.; Gantchev, N.; and Hwang, S.. “Changing of the Guards: Does Succession Planning Matter?” available at SSRN: https://ssrn.com/abstract=2862653 or http://doi.org/10.2139/ssrn.2862653 (2018).CrossRefGoogle Scholar
Denis, D. J., and Denis, D. K.. “Performance Changes Following Top Management Dismissals.” Journal of Finance, 50 (1995), 1029–1057.CrossRefGoogle Scholar
Denis, D. J.; Denis, D. K.; and Walker, M. D.. “CEO Assessment and the Structure of Newly Formed Boards.” Review of Financial Studies, 28 (2015), 3338–3366.Google Scholar
Fama, E. F., and French, K. R.. “A Five-Factor Asset Pricing Model.” Journal of Financial Economics, 116 (2015), 1–22.CrossRefGoogle Scholar
Favaro, K.; Karlsson, P.; and Neilson, G. L.. “The $112 Billion CEO Succession Problem.” Strategy+Business, 79 (2015), 1–14.Google Scholar
Gao, H.; Harford, J.; and Li, K.. “CEO Turnover–Performance Sensitivity in Private Firms.” Journal of Financial and Quantitative Analysis, 52 (2017), 583–611.CrossRefGoogle Scholar
Ghosh, A. A., and Wang, J.. “Accounting Losses as a Heuristic for Managerial Failure: Evidence from CEO Turnovers.” Journal of Financial and Quantitative Analysis, 54 (2019), 877–906.Google Scholar
Güner, A. B.; Malmendier, U.; and Tate, G.. “Financial Expertise of Directors.” Journal of Financial Economics, 88 (2008), 323–354.CrossRefGoogle Scholar
Hay Group. “Succession Planning, Executive Compensation, and Good Corporate Governance,” available at https://www.haygroup.com/us/downloads/details.aspx?id=24560 (2010).Google Scholar
Heidrick & Struggles, and the Rock Center for Corporate Governance at Stanford. “Survey on CEO Succession Planning,” available at https://www.gsb.stanford.edu/faculty-research/publications/2010-ceo-succession-planning-survey (2010).Google Scholar
Hermalin, B. E. “Trends in Corporate Governance.” Journal of Finance, 60 (2005), 2351–2384.CrossRefGoogle Scholar
Hermalin, B. E., and Weisbach, M. S.. “Understanding Corporate Governance Through Learning Models of Managerial Competence.” Asia‐Pacific Journal of Financial Studies, 48 (2019), 7–29.Google Scholar
Huson, M. R.; Malatesta, P. H.; and Parrino, R.. “Managerial Succession and Firm Performance.” Journal of Financial Economics, 74 (2004), 237–275.Google Scholar
Jenter, D., and Kanaan, F.. “CEO Turnover and Relative Performance Evaluation.” Journal of Finance, 70 (2015), 2155–2184.CrossRefGoogle Scholar
Jenter, D., and Lewellen, K.. “Performance-Induced CEO Turnover.” Review of Financial Studies, 34 (2021), 569–617.Google Scholar
Karpoff, J. M.; Malatesta, P. H.; and Walkling, R. A.. “Corporate Governance and Shareholder Initiatives: Empirical Evidence.” Journal of Financial Economics, 42 (1996), 365–395.CrossRefGoogle Scholar
Naveen, L. “Organizational Complexity and Succession Planning.” Journal of Financial and Quantitative Analysis, 41 (2006), 661–683.Google Scholar
Parrino, R. “CEO Turnover and Outside Succession a Cross-Sectional Analysis.” Journal of Financial Economics, 46 (1997), 165–197.Google Scholar
Peters, F. S., and Wagner, A. F.. “The Executive Turnover Risk Premium.” Journal of Finance, 69 (2014), 1529–1563.CrossRefGoogle Scholar
RiskMetrics Group. “Policy Updates for 2010 Proxy Season,” available at https://corpgov.law.harvard.edu/2009/12/15/riskmetrics-issues-policy-updates-for-2010-proxy-season/ (2010).Google Scholar
Rosenstein, S., and Wyatt, J. G.. “Outside Directors, Board Independence, and Shareholder Wealth.” Journal of Financial Economics, 26 (1990), 175–191.CrossRefGoogle Scholar
Shivdasani, A., and Yermack, D.. “CEO Involvement in the Selection of New Board Members: An Empirical Analysis.” Journal of Finance, 54 (1999), 1829–1853.CrossRefGoogle Scholar
Shen, W., and Cannella, A. A. Jr. “Will Succession Planning Increase Shareholder Wealth? Evidence from Investor Reactions to Relay CEO Successions.” Strategic Management Journal, 24 (2003), 191–198.CrossRefGoogle Scholar
Vancil, R. F. Passing the Baton: Managing the Process of CEO Succession. Boston, MA: Harvard Business School Press (1987).Google Scholar
Wang, C.; Xie, F.; and Zhu, M.. “Industry Expertise of Independent Directors and Board Monitoring.” Journal of Financial and Quantitative Analysis, 50 (2015), 929–962.CrossRefGoogle Scholar
Willis Towers Watson. “Smarter Succession Planning Makes for Better Appointments,” available at https://www.towerswatson.com/en/Insights/IC-Types/Ad-hoc-Point-of-View/2016/05/Smarter-succession-planning-makes-for-better-appointments (2016).Google Scholar
Winkler, E. “The Penney Drops.” Wall Street Journal, May 22, available at https://www.wsj.com/articles/the-penney-drops-1527002037 (2018).Google Scholar
Yermack, D. “Flights of Fancy: Corporate Jets, CEO Perquisites, and Inferior Shareholder Returns.” Journal of Financial Economics, 80 (2006), 211–242.Google Scholar
Supplementary material: PDF

McConnell and Qi supplementary material

Online Appendix

Download McConnell and Qi supplementary material(PDF)
PDF 241.8 KB