Stock market reactions to CEO succession announcements: inside versus outside recruitment?

Sparse attention has been paid to the analysis of stock market reactions of external versus internal CEO appointments. This article seeks to fill this research gap by conducting an event study of stock market reactions to CEO succession announcements based on a sample of Danish, Swedish and Finnish firms. Danish stock market rewards externally appointed candidates, whereas the Swedish stock market reacts negatively in the case of internal CEOs. It is argued that national legal and institutional differences put different constraints on the power of CEOs. The impact of internal versus external CEO successors is therefore very much country dependent. Furthermore, it is shown that past firm performance does not significantly influence abnormal returns in all the three countries. Abnormal returns are also linked to individual CEO characteristics. The analysis shows positive significant stock market reactions only when the age difference increases between a new internal and a former CEO.