Are Turnaround Specialists Special? An Examination of CEO Reputation and CEO Succession

67 Pages Posted: 9 Nov 2011 Last revised: 9 Sep 2012

See all articles by Jesse A. Ellis

Jesse A. Ellis

North Carolina State University

Date Written: September 8, 2012

Abstract

This paper examines the economic consequences for firms that hire CEOs who have a reputation for being turnaround specialists. Abnormal returns around announcements that turnaround specialists have been hired as CEOs are significantly positive and more than 6 percentage points larger than the returns associated with announcements of other CEO successions. Significant differences exist in the attributes of firms that hire turnaround specialists as CEOs versus firms that hire others as CEOs in ways consistent with several hypotheses that I develop. Specifically, firms that hire turnaround specialists face a higher probability of distress, lower profit rates, and lower pre-succession stock returns than firms that hire others as CEOs. Firms that hire turnaround specialists reduce operating scale and show significant improvement in operating performance on average, indicating that the turnaround specialists’ reputation is commensurate with their abilities and managerial style.

Keywords: Turnaround, CEO reputation, CEO succession, CEO style

JEL Classification: G30, G32, G34, J6

Suggested Citation

Ellis, Jesse A., Are Turnaround Specialists Special? An Examination of CEO Reputation and CEO Succession (September 8, 2012). Available at SSRN: https://ssrn.com/abstract=1956691 or http://dx.doi.org/10.2139/ssrn.1956691

Jesse A. Ellis (Contact Author)

North Carolina State University ( email )

Poole College of Management
Campus Box 7229
Raleigh, NC 27695
United States
919-515-9670 (Phone)

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