Executive Succession in Failing Firms

Executive succession in failing companies is examined. The complex business uncertainties confronted by such companies can lead to a redistribution or transfer of power within them. Attention is focused on the effect of firm size on the incidence of replacement of chief executive officers (CEO) and the relative probability of insider or outsider succession in failing firms. Analysis reveals that outsider succession is more likely than insider succession among failing companies. During periods of financial stress, firms appear to seek external solutions to their problems. Firm size is not found to influence decisions to make CEO changes, but the larger failing companies that made such changes tended to prefer external replacements more than the smaller ones. Future research might examine the efficacy of making top management changes as a turnaround strategy by comparing firms that revive with those that liquidate.