CEO Succession and Firm Performance: The Interconnectedness Between the Nature of Departure and Successor Origin

Abstract: We investigate whether firm performance following CEO succession is influenced by the nature of the departure in combination with the origin of the successor CEO. We hypothesize that an interconnectedness of those two processes plays a fundamental role in explaining the link between executive turnover and subsequent firm performance. Using a quasi-experimental difference-in-difference model on 514 succession events for Swedish listed firms in the period 2000-2017, we examine this interaction and demonstrate its significance for the understanding of post-succession performance changes. Notably, we find strong empirical evidence that forced CEO departures followed by outsider CEO successors yield significant positive change in operating firm performance. Also, we verify that this effect can be explained neither by the nature of the departure nor by the successor origin alone. These are important findings that help shift the analysis from the separately treated dismissal and successor events to the full turnover event.