Rules of behavior guide decisions, and succession rules guide CEO selection.
When CEO turnover is unanticipated, succession rules may not be able to
guide the board. We examine unanticipated successions that occur when a CEO
becomes ill or injured. These unanticipated successions are associated with a
greater likelihood of former-CEO successors than when the successions are
anticipated. The stock market reacts positively to former-CEO succession announcements.
While this type of succession may not be consistent with succession
rules, it may be consistent with their functions by reducing internal conflict and
allowing directors to maintain fiduciary responsibiliy.
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