Abstract

Succession and leadership effects are two important elements to the understanding of the impact of CEO succession on the performance of the organization as measured by shareholders' expectations of future earnings. This relationship is moderated by the presuccession performance - a context variable -, successor origin, departure type and CEO compensation--three content variables. This study also investigates whether presuccession performance is an antecedent to origin. The findings in past research have been conflicting but basically supported either one of three theories of succession that the event has either positive, negative or no effect on the organization. This study uses the event study methodology, which allows the measurement of abnormal returns for the stock of companies around the announcement date. A sample of 156 large business organizations that had announced the succession event in the Wall Street Journal for the years 1986-1995 is used, and the compensation data are extracted from the yearly compensation scoreboard of the Business Week. The results show that both effect are important in the full understanding of succession impact, and some of the moderators are also very influential while others less so.