ABSTRACT This paper examines how CEO turnover affects partner firms' capital expenditures. We show that turnover is disruptive, leading partner firms to reduce capital spending. This effect is more pronounced in alliances involving relationship‐specific investments and following forced CEO turnovers but is attenuated when switching costs are high. We further find that partner firms increase dividend payouts following turnover, mitigating concerns about managerial discretion over excess capital, with stronger effects when internal board monitoring is stronger or managerial entrenchment is higher. Finally, we explore underlying mechanisms and show that reduced investment stems from heightened uncertainty and precautionary reductions in risk taking.
Wei et al. (Fri,) studied this question.