The Effect of Mandatory Disclosure on the CEO Market for Private Firms

Abstract

Leveraging the European reporting framework, we collect a large dataset of CEO appointments and transitions in private firms to examine how mandatory disclosure influences the CEO market for private firms. We find that more financial disclosure within an industry is associated with more executive turnover. Two mechanisms contribute to this result. First, disclosure enhances relative performance evaluation: following an increase in disclosure in the industry, underperforming executives are more likely to be replaced. Second, disclosure facilitates talent identification: executives of firms just above the disclosure threshold are more likely to be promoted (when they perform well) than those just below.

Keywords: CEO labor market, CEO turnover, CEO gender, Private firms, Reporting regulation