CEO identity and labor contracts: Evidence from CEO transitions

This paper assesses how CEO transitions shape labor contracts within firms. We argue that family links between a new CEO and his predecessor act as a commitment device for upholding implicit contracts with the workforce. Consistent with this view, we find evidence of a wage insurance mechanism durin...

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Veröffentlicht in:	Journal of corporate finance (Amsterdam, Netherlands) Netherlands), 2015-08, Vol.33, p.227-242
Hauptverfasser:	Bach, Laurent, Serrano-Velarde, Nicolas
Format:	Artikel
Sprache:	eng
Schlagworte:	CEO choice Chief executive officers Dynastic management Executive compensation Labor contracts Severance pay Studies Successors Workforce
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Beschreibung
Zusammenfassung:	This paper assesses how CEO transitions shape labor contracts within firms. We argue that family links between a new CEO and his predecessor act as a commitment device for upholding implicit contracts with the workforce. Consistent with this view, we find evidence of a wage insurance mechanism during a CEO transition. Dynastically-promoted CEOs relative to external CEOs are associated with up to 25% less job separations and 20% lower wage growth. Crucially, we show that differences, in terms of job separations, between dynastic and non-dynastic CEO successions are significantly greater when labor markets are more frictional.
ISSN:	0929-1199 1872-6313 1872-6313
DOI:	10.1016/j.jcorpfin.2015.01.009