The employment horizon of a CEO and the relation between turnover and innovation

This thesis investigates the effect of the short employment horizon of the CEO on innovation for US firms in the period 2010-2016. The total number of CEO turnoversincreased during this century, while the reasons that lead to a CEO change are not always clear. It is also important to investigate the effects in the period after the turnover. It is essentialfor firms to keep developing their strategies, products and processes. If developmentswithin firmsregarding strategies, processes or products stagnate, competition will overtake them. That is why it is not only important to investigate the relation between CEO turnover and innovation, but also the former CEO’s reason for departure, which shows the status of a company when experiencinga turnover. Previous literaturefindsevidence that poor firm performance is positively associated with CEO turnover. There is also evidence that CEO turnover increases innovation. However, the combination of these two studies is not very common in previous empirical literature. This thesis combines the period before and after the turnover. I find a positive relation between the number of consecutive loss years and the likelihood of CEOturnover. I also find evidence that the probability of a CEO turnover in the near future increases innovation.However, I do not find evidence that a new external CEO decreases innovation. New overconfident CEOs decrease innovation, whereas a new CEO that becomesactive after a forced departure of the former CEO increases the innovation.