CEO SUCCESSION AND STOCKHOLDER REACTION: THE INFLUENCE OF ORGANIZATIONAL CONTEXT AND EVENT CONTENT.

Abstract

In this article, we construe chief executive officer (CEO) succession events as instances of organizational change. Predictions of positive, negative, or inconsequential outcomes of succession events are contingent on two features of organizational context—presuccession organizational performance and organizational size—and three elements of the content of a succession event: the force initiating the change in CEO, the predecessor's disposition, and the origin of the new CEO. We found that poor presuccession performance was associated with board-initiation and predecessor departure. Stockholder reactions were positive when presuccession performance was poor and either boards or, to a lesser extent, CEOs initiated successions. Successions that occurred when performance had been good resulted in negative consequences, as did those caused by CEO disability. However, most successions studied were customary retirements associated with no significant stockholder reaction.