CEO succession in South Africa: the influence of governance and environmental factors on insider vs outsider appointments and strategic change

Abstract

Chief Executive Officer (CEO) succession is the most critical decision boards face, as it influences the company's strategic direction. This study investigates how environmental munificence, environmental dynamism, and CEO dismissal influence the appointment of insiders versus outsiders, and how this choice moderates the relationship between environmental conditions and corporate governance dynamics in the post-succession strategic change period. A quantitative research design was employed to analyse 212 succession events that occurred between 2010 and 2022. Ending in 2022 allowed the inclusion of post-succession strategic change data. Probit regression was used to analyse the likelihood of an insider or an outsider to be chosen as successor. Ordinary least squares was used to test the moderating effect of succession type on the relationship between contextual factors and post-succession strategic change, using the Heckman two-step approach to correct for selection bias. The results indicate that outsiders are more likely to be appointed after a dismissal, while environmental munificence and dynamism did not affect the choice between insiders and outsiders. The results further did not find support that succession type moderates the effect on the post-succession strategic change. This study extends Upper Echelons Theory to emerging markets, demonstrating how environmental munificence, environmental dynamism, and CEO dismissal shape CEO succession and its post-succession implications.