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Impact of CEO succession on strategic changes in large Indian firms (CD)

By: Sharma, Kamal.
Material type: materialTypeLabelBookPublisher: Ahmedabad Indian Institute of Management Ahmedabad 2016Description: 205 p.Subject(s): Strategic changes | Indian bankingDDC classification: TH 2016-05 Summary: Abstract This thesis integrates aspects of CEO cognition, managerial discretion, firm’s internal dynamics and institutional drivers to better understand the impact of CEO succession on strategic changes. This is the first broad-based investigation of CEO succession-strategic change relationship in the Indian context. It integrates variables related to personal characteristics of the CEO (familial embeddedness, international exposure), firm characteristics (family ownership/governance), and environment characteristics (economic and socio-political). We use two complementary methods to investigate the impact of CEO succession on strategic changes in firms and the conditions in which such changes occur. An econometric study, with fixed effects multiple regression on pooled cross-sectional time-series data spanning ten years for 134 BSE (Bombay Stock Exchange) listed firms, investigates the effect of succeeding CEO and firm characteristics on strategic change. Further, the thesis investigates whether familial embeddedness of an incoming CEO and the CEO’s international exposure have an impact on strategic changes in 98 family firms. The Econometric Study is complemented by a longitudinal comparative study of two banks over 90 years to bring out the nuances of the relationship among succession, strategic changes and environmental developments. Results of our analyses highlight that a firm does not necessarily undergo significant strategic changes immediately upon CEO succession. We observe an impact on strategic changes when the incoming CEO is from within the promoter family and has prior international exposure. We note that CEOs are unlikely to initiate significant strategic changes when the external socio-political environment is turbulent, indicating that CEOs prefer to wait and watch the environment for clarity. We note the same lack of strategic changes when the economic environment is benevolent, suggesting that organizational legacy strongly influences decision making in such situations. This thesis extends upper echelon theory by observing the career of a CEO as a continuum, and highlighting the effect of environment. Further, it contributes to managerial discretion theory and family business literature. The results are also relevant to practitioners, whether they are executives/ employees of firms or investors. Thesis Advisory Committee Prof. M.R. Dixit [Chairperson] Prof. Rakesh Basant [Member] Prof. D. Karthik [Member]
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Contents
Abstract ................................................................................................................................................. 3
Acknowledgements ................................................................................................................................ 5
List of Tables ........................................................................................................................................ 10
List of Figures ....................................................................................................................................... 11
CHAPTER ONE: INTRODUCTION ........................................................................................................... 12
Overview of the Thesis ...................................................................................................................... 12
Why Study CEO Succession? ............................................................................................................. 13
Beyond CEO Succession .................................................................................................................... 16
Specifying the Context ...................................................................................................................... 18
Objectives of the Thesis .................................................................................................................... 19
Broad Design of the Thesis................................................................................................................ 20
Chapter Organization ........................................................................................................................ 23
CHAPTER TWO: THEORETICAL FRAMEWORK, HYPOTHESES AND DESIGN ........................................ 24
Introduction ..................................................................................................................................... 24 Initiation of the Field ......................................................................................................................... 25 Importance of CEO and CEO Succession ........................................................................................... 26
CEO’s Initiatives................................................................................................................................ 41
Strategy of a Firm .............................................................................................................................. 42
Promoter Families in Family Businesses ........................................................................................... 45
Prior Career Experiences of CEOs ..................................................................................................... 58
Context: Indian Economy .................................................................................................................. 60
Current Research .............................................................................................................................. 62
Research Design ............................................................................................................................... 65
CHAPTER THREE: QUANTITATIVE DATA ANALYSIS AND RESULTS ...................................................... 69
Introduction ..................................................................................................................................... 69
Schematic Framework for Quantitative Section ............................................................................... 70
8
Sources of Data ................................................................................................................................ 70
Sample and Data Structure ............................................................................................................... 72
Definitions and Measurement of Variables ...................................................................................... 76
Standalone Variables .................................................................................................................... 76
Dimensions of Strategy and Measure of Strategic Change .......................................................... 85 Empirical Models.............................................................................................................................. 87
Model Specification .......................................................................................................................... 88
Rationale for Using Fixed Effects Model ........................................................................................... 89
Testing for Multicollinearity .............................................................................................................. 90
Tabulated Results .............................................................................................................................. 90
Results of Hypotheses Testing .......................................................................................................... 95
Insights and Discussions .................................................................................................................... 96
“You’re family, but not from here”: .............................................................................................. 99
CHAPTER FOUR: CASE ANALYSIS ........................................................................................................ 103
Introduction ................................................................................................................................... 103
Site of Enquiry and Selection of Cases ............................................................................................ 107
Indian Banking: A Brief Background ............................................................................................ 109
Selection of Banks for In-depth Studies ...................................................................................... 112
Sources of Data ............................................................................................................................... 113
Canara Bank Limited ...................................................................................................................... 114
Syndicate Bank ............................................................................................................................... 123
Definition and Measurement of Variables...................................................................................... 130
Elements of Strategy ................................................................................................................... 130
Environmental Conditions .......................................................................................................... 131
Measures .................................................................................................................................... 132
Analysis of the Two Experiences: Drawing Propositions ................................................................ 136
Role of Organizational Conditions .............................................................................................. 136
Role of External Environment ..................................................................................................... 137
Role of Familial Embeddedness .................................................................................................. 139
Additional Analysis ...................................................................................................................... 141
9
Conclusions .................................................................................................................................... 147
Additional Insights .......................................................................................................................... 149
Summary of Propositions ................................................................................................................ 154
CHAPTER FIVE: DISCUSSION AND CONCLUSION ............................................................................... 155
A Consolidated View ....................................................................................................................... 155
Three Axes Affecting Strategy ......................................................................................................... 159
Cultural Underpinnings ................................................................................................................... 161
Looking Back and Taking Stock ....................................................................................................... 163
Theoretical Contributions ............................................................................................................... 164
Methodological Contributions ........................................................................................................ 168
Contributions to Practice ................................................................................................................ 170
Limitations and Future Course ........................................................................................................ 171
Appendix 1 ......................................................................................................................................... 178
Appendix 2 ......................................................................................................................................... 180
Appendix 3 ......................................................................................................................................... 182
Appendix 3 ......................................................................................................................................... 183
Appendix 4 ......................................................................................................................................... 184
Appendix 5 ......................................................................................................................................... 185
Appendix 6 ......................................................................................................................................... 186
Appendix 7 ......................................................................................................................................... 187
Appendix 8 ......................................................................................................................................... 188
Appendix 9 ......................................................................................................................................... 190
REFERENCES ................................................................................................................................... 191

Abstract



This thesis integrates aspects of CEO cognition, managerial discretion, firm’s internal dynamics and institutional drivers to better understand the impact of CEO succession on strategic changes. This is the first broad-based investigation of CEO succession-strategic change relationship in the Indian context. It integrates variables related to personal characteristics of the CEO (familial embeddedness, international exposure), firm characteristics (family ownership/governance), and environment characteristics (economic and socio-political).
We use two complementary methods to investigate the impact of CEO succession on strategic changes in firms and the conditions in which such changes occur. An econometric study, with fixed effects multiple regression on pooled cross-sectional time-series data spanning ten years for 134 BSE (Bombay Stock Exchange) listed firms, investigates the effect of succeeding CEO and firm characteristics on strategic change. Further, the thesis investigates whether familial embeddedness of an incoming CEO and the CEO’s international exposure have an impact on strategic changes in 98 family firms. The Econometric Study is complemented by a longitudinal comparative study of two banks over 90 years to bring out the nuances of the relationship among succession, strategic changes and environmental developments.
Results of our analyses highlight that a firm does not necessarily undergo significant strategic changes immediately upon CEO succession. We observe an impact on strategic changes when the incoming CEO is from within the promoter family and has prior international exposure. We note that CEOs are unlikely to initiate significant strategic changes when the external socio-political environment is turbulent, indicating that CEOs prefer to wait and watch the environment for clarity. We note the same lack of strategic changes when the economic environment is benevolent, suggesting that organizational legacy strongly influences decision making in such situations.
This thesis extends upper echelon theory by observing the career of a CEO as a continuum, and highlighting the effect of environment. Further, it contributes to managerial discretion theory and family business literature. The results are also relevant to practitioners, whether they are executives/ employees of firms or investors.

Thesis Advisory Committee
Prof. M.R. Dixit [Chairperson]
Prof. Rakesh Basant [Member]
Prof. D. Karthik [Member]

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