Management Turnover and Succession Planning in Firms

In this study, I investigate some of the issues involved in the process of CEO succession. Parrino (1997) suggests that one way for organizations to reduce their succession costs is to have formal succession plans. I provide evidence consistent with firms managing succession so as to reduce succession costs. I show that the probability of top executive turnover is higher for firms that have succession plans. Also such firms are more likely to have inside succession. I also find that firms that ex-ante expect to have high costs of outside succession are more likely to do succession planning. Specifically, I find that succession planning is more likely in firms in heterogeneous industries, in larger firms, and in diversified firms.