The effect of CEO turnover on a firm’s capital structure
Abstract. This article studies the effect of CEO turnover on a company's financing policy. The approach is based on the event study’s methodology, the event being a change in CEOs. We find evidence that between the year preceding the change (t-1) and the year (t+3), firms abnormally change their leverage ratio. Within three years, firms with more extreme leverage ratios converge more significantly to the industry median. The adjustment carried out by the new CEO is more relevant in the second year. Moreover, insider CEOs demonstrate greater smoothness when implementing the adjustments.
CEO turnover, capital structure, insider CEO, outsider CEO