Incentives vs. entrenchment: the case of founder CEO succession

Abstract

This study empirically investigates the stock market and financial performance in years surrounding founder CEO succession during the period 1990 through 1995. The second objective of this study is to examine, using the standard event study methodology, the security price responses to the event of founder CEO succession. The third objective of the paper is to test the managerial decision making in the years surrounding the founder CEO succession. Sub-samples of ousters and normal successions (resignations) were created from the sample of founder CEO successions. The results of this study indicate that after succession the ousters stock market performance improves relative to the pre-event period.