CEO tenure and the performance-turnover relation

Dikolli, Shane S.; Mayew, William J.; Nanda, Dhananjay

doi:10.2139/ssrn.1104616

CEO tenure and the performance-turnover relation

Dikolli, Shane S., William J. Mayew, and Dhananjay Nanda. "CEO tenure and the performance-turnover relation." Review of accounting studies 19.1 (2014): 281-327.

Posted: 13 Mar 2008 Last revised: 19 Oct 2021

See all articles by Shane S. Dikolli

Shane S. Dikolli

University of Virginia - Darden School of Business

William J. Mayew

Duke University - Fuqua School of Business

Dhananjay Nanda

University of Miami - Department of Accounting

Date Written: January 1, 2014

Abstract

In a broad cross-section of US firms, we document that the likelihood of a CEO’s performance-related dismissal declines in his tenure. This finding is consistent with both firm performance revealing information about a CEO’s uncertain executive ability and CEO tenure reflecting weak firm governance choices that reduce the likelihood of performance-related dismissal. In a sample of CEOs who begin their appointment during our sample period, we find evidence more broadly in favor of the former explanation. Specifically, we find that (1) CEO survival is associated with superior firm performance, (2) this relation is unaffected by firm governance choices, (3) the intensity with which a firm monitors its CEO declines over his tenure, and (4) firms’ monitoring intensity increases following CEO turnover. Collectively, our results suggest that periodic performance reports increasingly resolve uncertainty regarding executive ability, thereby lowering firm owners’ demand for monitoring their CEO over his tenure.

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

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

Suggested Citation: Suggested Citation

Dikolli, Shane and Mayew, William J. and Nanda, Dhananjay, CEO tenure and the performance-turnover relation (January 1, 2014). Dikolli, Shane S., William J. Mayew, and Dhananjay Nanda. "CEO tenure and the performance-turnover relation." Review of accounting studies 19.1 (2014): 281-327., Available at SSRN: https://ssrn.com/abstract=1104616 or http://dx.doi.org/10.2139/ssrn.1104616