Do CEOs exercise managerial discretion to save their jobs?

Sungsoo Kim (), Rakesh Sambharya () and Joon Yang ()

Journal of Management & Governance, 2016, vol. 20, issue 1, 179-200

Abstract: Chief Executive Officers (CEOs) wield considerable power and authority. In many industries and contexts, CEO turnover is studied in terms of antecedents, the event itself, and the related consequences. However, the extent to which CEOs exert their power and attempt to prevent their dismissal has not been thoroughly examined. In this study, we examine the role of CEOs exercising managerial discretion in their effort to prevent their own corporate demise. We hypothesize that CEOs cut discretionary expenses such as research and development, advertising, and rent in order to boost earnings and enhance financial performance. A sample of CEO turnover from Standard and Poor’s ExecComp database for the period 1992–1998 in US firms yielded 474 turnover firms and 2,066 control firm-years. We tested the effects of CEO turnover and managerial discretion on firm performance measured by cumulative abnormal stock returns. We also compared the turnover and non-turnover firms in terms of pattern of discretionary spending prior to CEO turnover. The results are consistent with our prediction that CEOs facing termination attempt to post higher earnings by reducing discretionary spending after controlling for firm performance, firm diversification, book to market ratio, and CEO ownership, industry-, and year dummies. Copyright Springer Science+Business Media New York 2016

Keywords: CEO turnover; Managerial discretion; CEO power (search for similar items in EconPapers)
Date: 2016
References: Add references at CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://hdl.handle.net/10.1007/s10997-014-9300-2 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:jmgtgv:v:20:y:2016:i:1:p:179-200

Ordering information: This journal article can be ordered from
http://www.springer. ... 29/journal/10997/PS2

DOI: 10.1007/s10997-014-9300-2

Access Statistics for this article

Journal of Management & Governance is currently edited by Lino Cinquini

More articles in Journal of Management & Governance from Springer, Accademia Italiana di Economia Aziendale (AIDEA) Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().