Interim CEO Successions: : Implications for CEO Successor Selection and Subsequent Firm Performance Articles uri icon

publication date

  • August 2024

start page

  • 786

end page

  • 808

issue

  • 2

volume

  • 36

International Standard Serial Number (ISSN)

  • 1047-7039

Electronic International Standard Serial Number (EISSN)

  • 1526-5455

abstract

  • Prior research highlights that interim CEO successions are disruptive for firms. Yet boards appoint interim CEOs in order to focus on finding the right person to take over permanently, suggesting they may offer benefits to CEO selection. Considering these two views, this paper compares the firm performance of CEOs appointed following an interim period with that of CEOs appointed in a direct succession. We argue that, owing to the disruption caused by the interim appointment, firm performance under a CEO appointed following an interim period will be poorer than under a CEO appointed in a direct succession. However, we posit that, in circumstances in which obtaining and processing the information relevant to CEO selection is more difficult, the interim period may be particularly helpful in selecting the most fitting successor and ultimately weakening the associated performance penalty. Using a sample of CEO successions that occurred in S&P 1500 firms between the years 2002 and 2016, we find general support for our hypotheses. This paper, thus, demonstrates that the subsequent performance consequences of appointing an interim CEO depends on the difficulty of selecting the firm’s next permanent CEO.