When Star CEO Departs: Moderating Effects of Industry, Firm, and Departing CEO Characteristics

Since Hambrick and Mason’s watershed essay on upper echelons, there has been much discussion concerning the performance effect during a CEO’s tenure in office. In this research stream, the current study notes the limitation that there is a lack of understanding of a CEO’s departure situation. Among various characteristics of CEOs, this study focuses on the CEO celebrity, because we believe that a star CEO’s departure has a significant impact on firm performance. To explain the interrelationship between star CEO departure and firm performance, we adopt a resource-based view and human capital theory. Unlike prior research, we highlight a resource-loss situation rather than a resource acquisition. The current study posits that the star CEO’s human capital is more valuable and non-substitutable for the firm; thus, resource loss resulting from the star CEO’s departure leads to negative performance. Moreover, this study suggests that star CEO departure effects are context-specific and there are more negative performance consequences of star CEO departure when the firm highly depends on the CEO. We have four moderators in order to examine whether the effect of star CEO departure is contingent on certain situations. Using the data on CEO succession events during 2005-2012 in Korea, we find that star CEO departure has a detrimental effect on subsequent firm performance relative to the case of non-star CEO departure. Tests on moderating effects show that the effect of star CEO departure is more negative when the industry is highly dynamic, the firm has low level of slack, or the departing CEO has had long tenure as the CEO. Finally, we close the study with implications and future research directions.