Financial authorities and investors have raised concerns about protracted CEO successions. We document that about a third of CEO successions are protracted, during which a lame-duck CEO continues to run the firm for about six months before a successor is announced. Despite a negative stock price reaction to protracted succession announcements, firms run by lame-duck CEOs perform well on various measures: they generate an annual four-factor alpha of 9.6% and exhibit positive abnormal returns around earnings announcements. Testing different mechanisms, we show that the results are stronger when the competition between internal candidates is more intense. Our findings suggest that the market misprices the value of firms with lame-duck CEOs, but protracted successions are not detrimental to firm value.

Keywords: CEO turnovers, succession planning, tournaments, corporate governance

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