Abstract

Download | Share | Email | Add to Briefcase | Buy Hard Copy

Entrenchment and Changes in Performance Following CEO Turnover

Cristian L. Dezso
University of Maryland - R.H. Smith School of Business

December 19, 2007

Atlanta Competitive Advantage Conference Paper
Robert H. Smith School Research Paper No. RHS 06-103

Abstract:
I investigate whether CEO turnovers - forced, as well as voluntary - are accompanied by changes in firm performance, and whether governance provisions associated with managerial entrenchment affect these changes. Using data on CEO turnovers in the 800 largest U.S. companies occurring over the period 1980-2000, I present evidence that firms with entrenched CEOs exhibit significantly poorer performance in the year prior to forced turnover, and experience significantly larger performance improvements during the three years following forced turnover. More importantly, I show that these larger performance improvements are the result of improved management rather than mean reversion. This evidence provides strong support for the hypothesis that entrenchment hampers firm performance by protecting inferior CEOs.

Keywords: Entrenchment, Corporate governance, CEO turnover, Firm performance

JEL Classifications: G30, G34

Working Paper Series

Date posted: January 31, 2008 ; Last revised: November 11, 2009

Suggested Citation

Dezso, Cristian L., Entrenchment and Changes in Performance Following CEO Turnover (December 19, 2007). Atlanta Competitive Advantage Conference Paper; Robert H. Smith School Research Paper No. RHS 06-103. Available at SSRN: http://ssrn.com/abstract=1089121

Export to: Export Citation What's this?

Contact Information

Cristian L. Dezso (Contact Author)

University of Maryland - R.H. Smith School of Business ( email )

Van Munching Hall
College Park, MD 20742
United States
301-405-7832 (Phone)

HOME PAGE: http://www.rhsmith.umd.edu/lbpp/faculty/deszo.html