Abstract

http://ssrn.com/abstract=885531
 
 

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CEO Turnover and Relative Performance Evaluation


Dirk Jenter


Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

Fadi Kanaan


Massachusetts Institute of Technology (MIT) - Sloan School of Management

May 1, 2008

Stanford University Graduate School of Business Research Paper No. 1992
MIT Sloan Research Paper No. 4594-06
Rock Center for Corporate Governance Working Paper No. 24

Abstract:     
This paper examines whether CEOs are fired after bad firm performance caused by factors beyond their control. Standard economic theory predicts that corporate boards filter out exogenous industry and market shocks from firm performance before deciding on CEO retention. Using a new hand-collected sample of 1,627 CEO turnovers from 1993 to 2001, we document that CEOs are significantly more likely to be dismissed from their jobs after bad industry or bad market performance. A decline in the industry component of firm performance from its 75th to its 25th percentile increases the probability of a forced CEO turnover by approximately 50 percent. This result is at odds with the prior empirical literature, which showed that corporate boards filter exogenous shocks from CEO dismissal decisions in samples from the 1970s and 1980s. Our findings suggest that the standard CEO turnover model is too simple to capture the empirical relation between performance and forced CEO turnovers, and we evaluate several extensions to the standard model.

Number of Pages in PDF File: 76

Keywords: CEO Turnover, Performance Evaluation, Corporate Boards

JEL Classification: G30, G34, D20, D23, M51

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Date posted: February 17, 2006 ; Last revised: August 18, 2011

Suggested Citation

Jenter, Dirk and Kanaan, Fadi, CEO Turnover and Relative Performance Evaluation (May 1, 2008). Stanford University Graduate School of Business Research Paper No. 1992; MIT Sloan Research Paper No. 4594-06; Rock Center for Corporate Governance Working Paper No. 24. Available at SSRN: http://ssrn.com/abstract=885531 or http://dx.doi.org/10.2139/ssrn.885531

Contact Information

Dirk Jenter (Contact Author)
Stanford Graduate School of Business ( email )
518 Memorial Way
Stanford, CA 94305-5015
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Fadi Kanaan
Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )
50 Memorial Drive
Cambridge, MA 02142
United States
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