Article

Underlying Mechanics of a Succession Dance: Predecessor Preferences, Human Capital, and Ownership

Article

Underlying Mechanics of a Succession Dance: Predecessor Preferences, Human Capital, and Ownership

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Abstract

Continued post-succession engagement of CEO predecessors is a common phenomenon in family firm successions. The literature describes successions as an evolutionary process where the old executive phases out and his successor phases in. However, research on the exact circumstances under which a predecessor remains active subsequent to a CEO succession is relatively uncharted territory. By analyzing empirical evidence from a unique data set on 807 German family firm successions, this article analyzes what drives continued predecessor involvement. Drawing on (behavioral) agency theory and the resource based view, we cast light on this phenomenon three perspectives: human capital, ownership transition, and predecessor preferences. Our data reveals that two thirds of all predecessors stay active in the post-succession phase. Furthermore, 55.3% keep ownership shares. We find that the likelihood of predecessor activity is increased by family succession, nepotistic preferences, and tacit knowledge, but reduced by the successor’s human capital, successor’s ownership, and corporate age. Our contribution is a closer look into the mechanics and context factors that characterize the handover-phase, which is sometimes referred to as the “succession dance”.

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Innovation in the context of succession in family firms remains largely unexplored in empirical research. We investigate the post-succession innovation output of family and non-family CEO successors in family businesses using a sample of 455 German family firm successions. From a resource- and knowledge-based perspective, we examine how successor origin (i.e., family versus non-family CEO), continued predecessor influence, and context factors are related to post-succession innovation output. We find that a family CEO successor, higher successor CEO-related human capital, and prolonged predecessor influence increase the likelihood that post-succession innovation output is realized and, further, that the effect of predecessor CEO influence is moderated by successor CEO-related human capital. These results suggest that in many leadership constellations, distinctive familiness and access to the predecessors’ knowledge resources, as well as the transfer of resources and knowledge spillovers, provide a setting that enables innovation.
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