CEO selection, reference setting, and postsuccession strategic change

Abstract

PurposeDrawing on the literature on CEO succession research and impression management, the present study examines how the selection of CEO successors affects their motivation to initiate postsuccession strategic change. Based on the perspective of reference-dependence in prospect theory, the study also explores the impact of boards' reference-point setting on the intensity of CEO successors' inclination to change corporate strategy after assuming office.Design/methodology/approachTwo-stage Heckman model and a spline function analysis are used to analyze data of 4,373 firm-year observations from Chinese listed companies between 2001 and 2016.FindingsThe empirical findings indicate that the intensity of CEO successors' willingness to change corporate strategy is diluted by the gap between the focal firm's performance on succession and its prior performance, while it is strengthened by the gap between the focal firm's performance on succession and the industry-average level of performanceOriginality/valueBy establishing a theoretical model, the present study analyzes the process of CEO selection to explore the role of boards of directors in this process and its effect on CEO successors' willingness to initiate postsuccession strategic change. Significantly, this study shows that the boards of directors would adopt internal and external reference setting when evaluating CEO successors in the postsuccession phase, which would impact the intensity of successors' motivation to manage impression by initiating postsuccession strategic change.