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A Theory of Corporate Boards and Forced CEO Turnover

Thomas Chemmanur and Viktar Fedaseyeu ()
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Viktar Fedaseyeu: Bocconi University, 20136 Milan, Italy; IGIER - Innocenzo Gasparini Institute for Economic Research; 20136 Milan, Italy

Management Science, 2018, vol. 64, issue 10, 4798-4817

Abstract: We model a corporate board evaluating a chief executive officer (CEO) of uncertain management ability. Each director receives a noisy private signal about CEO ability, after which directors discuss this ability and vote to retain or replace the CEO. Directors care about true CEO ability, since it affects their equity holding values; however, a CEO may impose costs of dissent on a director who votes to fire but fails to oust her. We relate the equilibrium CEO firing decision to board size, board composition, the effect of an imprecise public signal, and the cost and probability of finding a good replacement CEO.

Keywords: CEO turnover; board of directors; board member discussions; corporate governance (search for similar items in EconPapers)
Date: 2018
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Working Paper: A Theory of Corporate Boards and Forced CEO Turnover (2012) Downloads
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