Abstract

http://ssrn.com/abstract=2040690
 
 

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Corporate Governance and CEO Turnover Decisions


Theodosios Dimopoulos


HEC- University of Lausanne; Swiss Finance Institute

Hannes F. Wagner


Bocconi University - Department of Finance; Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research

March 1, 2012

Swiss Finance Institute Research Paper No. 12-16

Abstract:     
This paper provides a cross-country analysis to determine whether CEO turnover is a credible threat, whether it is effective in delivering performance improvements, and whether better governance improves credibility and effectiveness of CEO turnover. The analysis is based on a detailed panel of 5,300 CEO years and spans two distinctly different financial systems – the U.K. and Germany – over the period 1995-2005. We find that CEOs face a credible threat of being removed for underperformance and that the hiring of new CEOs is effective in realizing large profitability improvements in the following years. We also find both relations to be virtually identical in both countries, despite large structural governance differences. Further, we consider a large number of firm-specific governance mechanisms previously proposed as indicators of better governance and find no evidence that any of them improve the observed relations between firm performance and CEO turnover. Taken together, our results suggest that changing the CEO is an important component of successful turnarounds in underperforming firms and that this economic mechanism appears to work in nearly identical ways across very different financial markets, and across firms with very different quality of governance.

Number of Pages in PDF File: 51

Keywords: CEO, board, turnover, performance, restructuring

JEL Classification: G30, G34

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Date posted: April 17, 2012  

Suggested Citation

Dimopoulos, Theodosios and Wagner, Hannes F., Corporate Governance and CEO Turnover Decisions (March 1, 2012). Swiss Finance Institute Research Paper No. 12-16. Available at SSRN: http://ssrn.com/abstract=2040690 or http://dx.doi.org/10.2139/ssrn.2040690

Contact Information

Theodosios Dimopoulos (Contact Author)
HEC- University of Lausanne ( email )
Unil Dorigny, Batiment Internef
Lausanne, 1015
Switzerland
0041 (0) 21 692 33 98 (Phone)
HOME PAGE: http://www.hec.unil.ch/people/tdimopoulos
Swiss Finance Institute ( email )
c/o University of Geneve
40, Bd du Pont-d'Arve
1211 Geneva, CH-6900
Switzerland
HOME PAGE: http://www.hec.unil.ch/people/tdimopoulos&vue=contact&set_language=en&cl=en
Hannes F. Wagner
Bocconi University - Department of Finance ( email )
Via Roentgen 1
Milano, MI 20136
Italy
HOME PAGE: http://faculty.unibocconi.eu/hanneswagner
Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research ( email )
Via Roentgen 1
Milan, 20136
Italy
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