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Performance-induced CEO turnover

Dirk Jenter () and Katharina A. Lewellen

No 12274, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper revisits the relationship between firm performance and CEO turnover. We drop the distinction between forced and voluntary turnovers and introduce the concept of performance-induced turnover, defined as turnover that would not have occurred had performance been "good". We document a close link between performance and CEO turnover and estimate that between 38% and 55% of all turnovers are performance induced, with an even higher percentage early in tenure. This is significantly more than the number of forced turnovers identified in prior studies. We contrast the empirical properties of performance-induced turnovers with the predictions of Bayesian learning models of CEO turnover. Learning by boards about CEO ability appears to be slow, and boards act as if CEO ability (or match quality) was subject to frequent and sizeable shocks.

Keywords: CEO turnover; CEO-firm matching; corporate governance; turnover-performance relationship (search for similar items in EconPapers)
JEL-codes: D22 D23 G34 J63 M12 M51 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn, nep-hrm and nep-lab
Date: 2017-09
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Working Paper: Performance-Induced CEO Turnover (2014) Downloads
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