Changes in Bank Profitability Post-CEO Succession: Does Prior CEO Experience Improve Bank Performance?

Based on a unique hand-collected dataset of CEO succession events in US bank holding companies (BHCs), we find that prior CEO experience of the newly appointed CEO improves bank profitability post-CEO succession, but primarily in underperforming banks. We distinguish prior CEO experience based on where the experience was obtained and find that the performance effect is driven by the experience gained outside the bank. Moreover, our study indicates that new CEOs with previous CEO experience acquired outside the bank are more likely to enhance profitability through earnings manipulation than those who obtained CEO experience within the bank or those without any previous CEO experience.