FINANCIAL PERFORMANCE SURROUNDING CEO TURNOVER

We document the behavior of a variety of financial variables surrounding CEO departures, and estimate the extent to which changes in potentially discretionary variables are explained by poor economic performance rather than direct managerial discretion. We conclude that turnover-related changes in R&D, advertising, capital expenditures, and accounting accruals are due mostly to poor performance. To the extent that outgoing or incoming managers exercise discretion over these variables, the discretion appears to be limited to firms where the CEO's departure is preceded by poor performance. We find no evidence of managerial discretion in strongly performing firms where the CEO retires as part of the normal succession process.