CEO turnover and financial policy transfer

We explore how Chief Executive Officer (CEO) turnovers influence firms’ capital structures. Our findings indicate that adjustments in capital structure are markedly more significant when the incoming CEO is sourced from outside the firm, compared to internal promotions. Moreover, firms undergoing CEO turnovers tend to realign their actual leverage to target levels more swiftly than those without such changes, with this process being particularly accelerated when the CEO is externally appointed. A notable insight from our analysis is that external CEOs frequently adopt and apply leverage strategies from their previous positions, transferring financial strategies that reflect their past experiences. These patterns remain robust when we specifically examine forced turnovers, suggesting that the external versus internal nature of succession, rather than the reason for turnover, drives the transfer of financial policies.