Communication within Firms: Evidence from CEO Turnovers

This paper uses novel, firm-level communication measures derived from communications metadata several months before and after a CEO transition for 102 firms to study whether and how this organizational event is reflected in employees’ communication flows. We find that CEO turnover is associated with an initial decrease in intra-firm communication (-10% relative to the pre-CEO transition period), followed by a significant increase approximately five months after the CEO turnover (+33%). The increase in communications is driven primarily by inter-departmental (i.e. communication involving employees of different functional departments) and vertical (i.e. communication among managers and employees) communication flows. Firms where the medium-run increase in communication is higher experience greater increases in market returns and revenues in the year following the CEO transition.