Just Talk? CEO Succession Plan Disclosure, Corporate Governance and Firm Value

We present causal evidence of an important yet less explored channel for board of directors to enhance firm value, namely by building, maintaining and disclosing a CEO succession plan. Using a new dataset of 9,084 CEOs and hand-collected information of succession plans, we exploit two regulatory changes and show that better corporate governance instigates firms to disclose succession plans, which causes significantly reduction in the volatility of stock returns, the entrenchment of incumbent CEOs, and the chances of hiring less-qualified successors. Firms with better governance earn positive abnormal returns around the announcement of regulations requesting for more disclosure of CEO succession plans. Firms disclosing succession plans have higher equity returns and experience positive abnormal returns when a new CEO is announced