Shifting gears: Role of CEO turnover on shifts between exploration and exploitation

Temporal ambidexterity (i.e., oscillating between exploration and exploitation over time) has been linked to profitability and growth of firms. However, the underlying mechanisms driving these shifts between exploration and exploitation remain poorly understood. This paper aims to investigate how CEO turnover and pre-turnover firm performance provide an opportunity for firms to shift between exploration and exploitation. Using panel data from 333 U.S. firms, the paper utilizes fixed-effects linear regressions and supplementary tests while addressing endogeneity concern in the empirical models. Our results show that firms have a higher magnitude of shifting between exploration and exploitation subsequent to a CEO's turnover, and the degree and likelihood of the shift are stronger when CEO turnover happened at the time of weak firm performance. The paper highlights that CEO turnover does not unidirectionally shift the firm's focus from exploitation to exploration but can result in shifts in either direction.