How does the appointment of a predecessor CEO as board chair (i.e., predecessor retention) affect post-succession firm performance? Agency theory suggests that firms with predecessor retention underperform compared to firms with other board chairs. We propose a stakeholder perspective rooted in incomplete contracting theory to highlight positive performance effects of predecessor retention. Stakeholders with firm-specific investments are concerned about being held up by new CEOs, which leads to negative stakeholder reactions upon CEO successions and post-succession performance declines. Because predecessor CEOs hold more firm-specific resources than other board chairs, they are well positioned to monitor and advise on stakeholder problems and mitigate performance declines after CEO successions. We identify family firms as a context in which the gains from mitigating negative stakeholder reactions outweigh the agency costs tied to predecessor retention. Probing a sample of CEO successions in the S&P 1500, we find that in family firms, predecessor retention leads to performance advantages over other board chairs, whereas the opposite holds true for nonfamily firms. We show that within the group of family firms, the performance advantages from predecessor retention increase in three contexts in which negative stakeholder reactions are pronounced: in outside CEO successions, in departures of long-tenured CEOs, and in firms with low complexity. Substantiating negative stakeholder reactions as the core mechanism, we show that predecessor retention decreases negative stakeholder reactions after CEO successions in family firms but not in nonfamily firms. Our study makes important contributions to the board chair and CEO succession literatures.