Effects of CEO turnover on company performance

Abstract: CEO turnover in listed companies has increased over the past decades. This paper explores whether or not changing CEO has a significant effect on company performance. We use the Strategic Leadership and Strategic Choice perspectives to explain why CEO turnovers could have an effect on company performance and the Population Ecology perspective to explain the contrary. With a quantitative approach complemented with qualitative interviews we then analyze CEO turnover by comparing it to the stock performance of 341 companies listed on the Swedish stock exchange from 1994 to 2009. Our statistical analyses show that CEO turnover has a negative correlation with company stock development. This effect is strongly significant in the short run (0-1 year), and only slightly significant in the long run (0-2 and 0-3 years) but is consistent over all periods. While there are many possible explanations our results indicate that changing CEO does affect company performance and that the Strategic Leadership and Strategic Choice perspectives are better at describing a CEO’s effect within a company.