CEO Turnover and Takeover Threats: New Evidence from Antitakeover Legislation

25 Pages Posted: 22 Mar 2009

See all articles by Jun Huang

Jun Huang

Shanghai University of Finance and Economics

Shan Zhao

City University of Hong Kong

Date Written: March 18, 2009

Abstract

To understand the interaction between internal control mechanisms and the market for control, using a difference-in-difference methodology, we examine CEO turnover following an exogenous decline of takeover threats---second generation of antitakeover legislation in the U.S. Different from previous research using only time series variation in CEO turnover, it is shown that, compared to a control group, the sensitivity of CEO turnover to performance increased for the firms affected by the laws. The increases are both statistically and economically significant. We also find that the increases in the sensitivity of CEO turnover to performance are concentrated in the firms with stronger board monitoring. Our results suggest that internal control mechanisms and the market for control may be substitutes instead of complements.

Keywords: CEO turnover, takeover, antitakeover legislation, corporate governance

JEL Classification: G30, G34, G38

Suggested Citation

Huang, Jun and Zhao, Shan, CEO Turnover and Takeover Threats: New Evidence from Antitakeover Legislation (March 18, 2009). Available at SSRN: https://ssrn.com/abstract=1362642 or http://dx.doi.org/10.2139/ssrn.1362642

Jun Huang

Shanghai University of Finance and Economics ( email )

No. 777 Guoding Road, Shanghai
Shanghai, 200433
China

Shan Zhao (Contact Author)

City University of Hong Kong ( email )

Hong Kong

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