Performance Surprises and Uncertain Managerial Ability: Evidence from CEO Turnovers

51 Pages Posted: 13 Mar 2008 Last revised: 2 Apr 2009

See all articles by Shane S. Dikolli

Shane S. Dikolli

Darden School of Business University of Virginia

William J. Mayew

Duke University - Fuqua School of Business

Dhananjay Nanda

University of Miami - Department of Accounting

Date Written: October 1, 2008

Abstract

We document that the number of past quarterly performance surprises: earnings decreases, negative analysts' forecast errors, and negative stock returns, are positively related to the likelihood of CEO dismissal. This relation declines over a CEO's tenure, consistent with performance surprises revealing information about uncertain managerial ability. We also show that CEO tenure affects firm governance characteristics: tenure is positively associated with CEO ownership and CEO-chair duality, and negatively associated with board independence. Results suggest that periodic performance reports increasingly resolve uncertainty about managerial ability thereby affecting a firm's demand for monitoring its CEO over the CEO's tenure.

Keywords: CEO turnover, Governance, Monitoring, Earnings Surprise, CEO tenure

JEL Classification: G34, G29, G32, J41, M41, M51

Suggested Citation

Dikolli, Shane Sami and Mayew, William J. and Nanda, Dhananjay, Performance Surprises and Uncertain Managerial Ability: Evidence from CEO Turnovers (October 1, 2008). Available at SSRN: https://ssrn.com/abstract=1104616 or http://dx.doi.org/10.2139/ssrn.1104616

Shane Sami Dikolli

Darden School of Business University of Virginia ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
4342431018 (Phone)

William J. Mayew

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-7781 (Phone)
919-660-7971 (Fax)

HOME PAGE: http://www.fuqua.duke.edu/faculty/alpha/mayew.htm

Dhananjay Nanda (Contact Author)

University of Miami - Department of Accounting ( email )

Coral Gables, FL 33146-6531
United States

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