Analyzing the Impact of CEO Turnover on Firm Performance and CEO Job Survival Rates. Evidence from Norwegian Firms

Abstract

This thesis examines the change in firm performance following CEO turnover, focusing on family firms (the largest family among the firm’s shareholders holds more or equal to 50% of the shares) versus non-family firms (<50%). We also investigate whether there are performance differences between hiring a family CEO (those related to the largest shareholder) and a non-family CEO.

Additionally, the thesis investigates the job survival rates of both CEOs in family versus non-family firms and family versus non-family CEOs, and how Return on Assets (ROA) relates to CEO turnover.

Using high-quality data from Norwegian companies, we clearly define family CEOs and family firms to ensure robust results. We develop three hypotheses based on existing literature to address the gap in research on CEO turnover and firm performance in family and non-family firms.

Our study finds that non-family firms outperform family firms in ROA improvement by 4.8 percentage points three years after a CEO transition. Hiring a non-family CEO leads to a 2.53 percentage point greater improvement in ROA over the same three-year period compared to hiring a family CEO.

Using the Cox Proportional Hazards Model, we find that CEOs in family firms are 64.18% less likely to be terminated compared to those in non-family firms. Family CEOs are 83% less likely to be terminated than non-family CEOs. Higher ROA is associated with a small but significant decrease in the hazard rate of CEO termination, with a one-percentage point increase in ROA reducing the hazard by 0.71%. This effect is more pronounced in family firms.

Kaplan-Meier Survival Analysis reveals that the median tenure of CEOs in family firms is over 21 years, significantly longer than the roughly 12 years for non-family firm CEOs. Similarly, family CEOs have median tenure exceeding 21 years, compared to around 9 years for non family CEOs. This highlights the unique stability and longevity associated with family CEOs compared to their non-family counterparts.