Does frequent leadership changes influence firm performance? Insights from China

Frequent leadership changes can considerably affect the strategic direction and smooth functioning of an enterprise. However, it still remains unknown that how a frequent leadership change impactscorporate performance indicators. This research aims to investigate the relationship between frequent leadership changes during ayear and firm performance. We analyze how CEO frequency during a one-year period impactsperformance indicators of Chinese listed firms. The results of panel fixed-effect regression reveal that,CEO turnover leads to a decline in corporate performance measured by ROA and ROE. Moreover, with an increase in annual turnover frequency, the degree of performance decline gets more pronounced. These results remain robust after controlling for endogeneity using the alternate econometric specification of 2SLS. The study findings assert that frequent CEO changes are not conducive to firm performance. Hence, stability in the CEO tenure is essential to sustain and optimize the financial performance of an enterprise.