Relays and Marathons: The Effects of Succession Choice Surrounding CEO Turnover Announcements

Abstract

This study examines marathon successions, which I define as instances where a permanent successor is not chosen at the time of a CEO departure. Marathons have become increasingly prevalent over the last ten years and represent the majority of succession decisions surrounding forced turnovers from 1995-2005. Firms implementing marathon successions around forced turnovers have strong internal governance structures, as measured by board size, director ownership, percentage of outside directors, and dual Chairman/CEO appointments. In addition, I find little evidence supporting the argument that extending the succession process through the use of a marathon leads to increases in uncertainty and/or agency costs in the form of horizon problems. Lastly, I find positive and significant announcement returns for forced marathon successions. These results provide insight into the succession process and the role of strong internal corporate governance in evaluating and implementing succession decisions.