Research Article

Stock Market Reactions to CEO Succession in Family-Controlled Firms

Jinah Ryu, Sun Hyun Park, Dong-Kee Rhee

University of Illinois at Urbana-Champaign
Seoul National University
Seoul National University

Published: January 2021 · Vol. 50, No. 4 · pp. 981-1009

DOI: https://doi.org/10.17287/kmr.2021.50.4.981

Abstract

We study market response toward family vs. professional CEO succession in a family-controlled firm. Drawing on theories distinguishing family CEOs from professional CEOs, we propose two competing hypotheses on whether investors react to family CEO succession more negatively (or positively) than to professional CEO succession in a family-controlled firm. We find that stock market reactions to family CEO succession are more negative compared to professional CEO succession, supporting the theoretical perspectives that stockholders consider family CEO succession as an extension of the owner family’s private benefit seeking. This negative market response to family CEO succession, however, decreases when the firm is under the market regulatory authorities’ monitoring. Our empirical analysis examining the announcement of CEO succession events in Korean public family-controlled firms between 2005 and 2016 provides strong support for our theoretical perspectives.

Keywords: CEO successioninvestor reactionfamily firmcorporate governance

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Published 2021-01-01

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