Changing of the Guards: Does Succession Planning Matter?

This paper studies the effects of succession planning on management successions using handcollected data on succession planning practices at U.S. public firms. Our tests highlight three dimensions in which succession planning impacts CEO turnover. Firms with succession plans (i) use more sophisticated performance metrics in evaluating their CEOs, (ii) experience lower uncertainty around successions and faster learning about CEO ability, and (iii) rely primarily on firm-specific information in CEO dismissals. Our findings are robust to the effects of firm and industry attributes, and indicate that succession planning improves the efficiency and lowers the cost of management transitions.