This study aims to examine the role of the incoming CEO as a precipitating circumstance that converts latent divestment pressures into foreign divestments. The authors develop a governance-based theoretical framework explaining when and why incoming CEOs increase the likelihood of foreign divestments.
Drawing on Boddewyn’s condition-motivation-precipitating circumstances framework and information asymmetry, the authors argue that CEO succession creates acute information asymmetry between the board and the incoming CEO, triggering heightened monitoring and generating incentives for early, visible and attributable strategic action. They test the predictions using an unbalanced panel of 8,682 firm-year observations from 835 publicly listed European firms.
Incoming CEOs are more than three times as likely as incumbent CEOs to initiate foreign divestments. This effect is stronger for outsider CEOs, non-native CEOs and CEOs appointed following unplanned successions – contexts in which information asymmetry between the board and the incoming CEO is most pronounced.
The study relies on archival data and does not directly observe information asymmetry or board monitoring processes. Future research should examine these mechanisms more directly.
Boards can reduce unintended incentives for early-tenure divestments through more structured succession planning. Incoming CEOs should be attentive to how their succession context shapes their interpretation of early strategic actions.
This study integrates Boddewyn’s precipitating circumstances logic with information asymmetry theory to provide a novel governance-based explanation for foreign divestments. It shifts attention from structural and environmental antecedents toward the managerial and informational dynamics surrounding CEO succession.
