EFFECT OF GENERATIONAL CEO TURNOVERS ON FINANCIAL PERFORMANCE OF PRIVATE NORWEGIAN FAMILY FIRMS IN THE OIL INDUSTRY

Abstract

Using data of private Norwegian family firms in the oil industry, we study the effect of generational CEO turnovers –between 2000 and 2017– on companies’ financial performance. We analyze firm performance by examining changes in operating return on assets in the years surrounding the CEO changes. We identify that, on average, family CEO successions: turn over the company to a younger generation, happen in smaller firms, and do not occur after a period of declining performance. More importantly, we find that family firms that undergo a family CEO succession experience no significant change in financial performance after the turnover compared to non-family CEO successions. Moreover, when controlling for firm age, CEO age, and year type, our findings suggest that family firms that undergo a family CEO succession experience a positive and significant change in profitability. Finally, given that the oil industry poses great importance to the Norwegian economy, we conclude that the effects in performance are attributed to CEOs acting as stewards of their firms and having a pressure to behave and maintain stable financial performance to contribute to the industry’s wellbeing.