Why are CEOs Rarely Fired? Evidence from Structural Estimation

42 Pages Posted: 26 Jun 2009

See all articles by Lucian Taylor

Lucian Taylor

University of Pennsylvania - The Wharton School

Date Written: June, 26 2009

Abstract

I evaluate the forced CEO turnover rate and quantify effects on shareholder value by estimating a dynamic model. The model features costly turnover and learning about CEO ability. To fit the observed forced turnover rate, the model needs the average board of directors to behave as if replacing the CEO costs shareholders at least $200 million. This cost mainly reflects CEO entrenchment rather than a real cost to shareholders. The model predicts shareholder value would rise 3% if we eliminated this perceived turnover cost, all else equal. In addition, the model helps explain the relation between CEO firings, tenure, and profitability.

Keywords: CEO, turnover, structural estimation

Suggested Citation

Taylor, Lucian, Why are CEOs Rarely Fired? Evidence from Structural Estimation (June, 26 2009). Available at SSRN: https://ssrn.com/abstract=1426310 or http://dx.doi.org/10.2139/ssrn.1426310

Lucian Taylor (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
106
Abstract Views
460
rank
286,055
PlumX Metrics