The impact of CEO tenure on firm value: the moderating role of ownership concentration

This study examines the complex relationship between CEO tenure and firm value, hypothesizing a non-linear effect that is contingent on the firm’s ownership structure. Grounded in upper-echelons and agency theories, we propose that the relationship between CEO tenure and firm value follows a U-shaped curve, but the presence of large monitoring shareholders flattens this curve. Using a longitudinal panel dataset of 54 firms, we employ fixed-effects regression models to test our hypotheses while controlling for firm- and governance-level factors. The results confirm a significant U-shaped relationship, where firm value (measured by Tobin’s Q) initially decreases with CEO tenure before increasing after a critical point. Crucially, we find that ownership concentration negatively moderates this relationship. The analysis provides evidence of a substitution effect. In firms with highly concentrated ownership, the vigilant oversight of blockholders substitutes for the governance provided by the CEO’s tenure, thereby weakening the link between the CEO’s tenure and firm performance. These findings underscore the importance of considering interactive governance mechanisms and provide valuable insights for boards, investors, and researchers on designing effective CEO succession planning and governance.