Firm Performance and Managerial Succession in Family Managed Firms

Abstract

Abstract: This paper investigates whether the family status of a company's top officer affects managerial replacement decisions. We report evidence that family‐managed companies are characterized by higher levels of board control and potentially weak internal governance systems. Family CEOs are less likely than non‐family CEOs to depart their position following poor performance. Stock prices react favorably and operating performance improves when companies announce the departure of a family CEO. Overall, our evidence suggests that shareholders benefit when a powerful CEO leaves their position in the company.