TITLE:
Shareholder Wealth Effects of CEO Succession
AUTHORS:
Kevin Banning
KEYWORDS:
CEO Compensation; Institutional Ownership
JOURNAL NAME:
American Journal of Industrial and Business Management,
Vol.3 No.6,
October
28,
2013
ABSTRACT: Companies often dismiss their chief executive officers (CEOs) when financial performance falters. This study examines why, despite the positive stock market effects, the replacement of the CEO often does little to change a company’s financial performance. Thanks to the agency arrangements in some companies, new CEOs are able to negotiate favorable contracts which benefit the CEO rather than the shareholders. In a sample of 140 publicly-traded firms, we found that compensation systems for new CEOs differed as a function of institutional ownership, with total executive compensation higher and compensation risk lower in firms with lower levels of institutional ownership. Financial performance was also weaker in firms with less institutional ownership.