Impact of CEO Succession on Strategic Changes in Large Indian Firms

Abstract

This thesis integrates aspects of CEO cognition, managerial discretion, firm’s internal dynamics and institutional drivers to better understand the impact of CEO succession on strategic changes. This is the first broad-based investigation of CEO succession-strategic change relationship in the Indian context. It integrates variables related to personal characteristics of the CEO (familial embeddedness, international exposure), firm characteristics (family ownership/governance), and environment characteristics (economic and socio-political). We use two complementary methods to investigate the impact of CEO succession on strategic changes in firms and the conditions in which such changes occur. An econometric study, with fixed effects multiple regression on pooled cross-sectional time-series data spanning ten years for 134 BSE (Bombay Stock Exchange) listed firms, investigates the effect of succeeding CEO and firm characteristics on strategic change. Further, the thesis investigates whether familial embeddedness of an incoming CEO and the CEO’s international exposure have an impact on strategic changes in 98 family firms. The Econometric Study is complemented by a longitudinal comparative study of two banks over 90 years to bring out the nuances of the relationship among succession, strategic changes and environmental developments. Results of our analyses highlight that a firm does not necessarily undergo significant strategic changes immediately upon CEO succession. We observe an impact on strategic changes when the incoming CEO is from within the promoter family and has prior international exposure. We note that CEOs are unlikely to initiate significant strategic changes when the external socio-political environment is turbulent, indicating that CEOs prefer to wait and watch the environment for clarity. We note the same lack of strategic changes when the economic environment is benevolent, suggesting that organizational legacy strongly influences decision making in such situations. This thesis extends upper echelon theory by observing the career of a CEO as a continuum, and highlighting the effect of environment. Further, it contributes to managerial discretion theory and family business literature. The results are also relevant to practitioners, whether they are executives/ employees of firms or investors.