The Economic Impact of Interim CEOs: The Case of Tax Avoidance

Abstract

ABSTRACT As interim CEO appointments are common in CEO successions, we examine these temporary executives’ economic impact on their firms. Specifically, we explore how interim CEOs affect corporate tax avoidance. We match each “interim CEO firm” (test firms) with a “direct-succession CEO firm” (control firms) and find that test firms report significantly and economically lower tax avoidance. We also find that test firms’ pre-tax earnings are similar to those of control firms, but their after-tax earnings are significantly lower. Further, we find that this lower tax avoidance holds only when interim appointees have low equity compensation, are not named as permanent/successor CEOs, and have no CFO background. Our paper opens the door for future investigation of the economic impact of interim CEOs, which has been under-investigated by prior studies.