CEO Turnover and Relative Performance Evaluation
Stanford Graduate School of Business; National Bureau of Economic Research (NBER)
Massachusetts Institute of Technology (MIT) - Sloan School of Management
April 15, 2014
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
This paper shows that 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 hand-collected sample of 3,365 CEO turnovers from 1993 to 2009, we document that CEOs are significantly more likely to be dismissed from their jobs after bad industry and, to a lesser extent, after bad market performance. A decline in industry performance from the 90th to the 10th percentile doubles the probability of a forced CEO turnover.
Number of Pages in PDF File: 34
Keywords: CEO Turnover, Performance Evaluation, Corporate Boards
JEL Classification: G30, G34, D20, D23, M51
Date posted: February 17, 2006 ; Last revised: June 7, 2014
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