Abstract

Analyzing announcements of CEO successions, researchers have purported that successor characteristics (e.g., insider versus outsider status and age) influence shareholders’ reaction to the announcement (Frandsen & Fredrickson, 2006). In focusing on successor descriptions, however, researchers have not (a) distinguished between founder-CEOs and other CEOs, and (b) considered the effects of a predecessor CEO’s plans to remain involved in the company. Assuming that successors wish to maximize their managerial discretion (Hambrick & Finkelstein, 1987) and that companies and successors engage in a bargaining process (Carey & Ogden, 2000), we hypothesize, only for the outside successions, that the position that a predecessor plans to occupy after succession will relate negatively to the successor’s prestige – especially when the predecessor is a founder. We also hypothesize that shareholders will react to both the predecessor’s post-succession position and the successor’s prestige.

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