Performance-Induced CEO Turnover

64 Pages Posted: 16 Mar 2010 Last revised: 14 Jul 2019

See all articles by Dirk Jenter

Dirk Jenter

London School of Economics & Political Science (LSE) - Department of Finance; Centre for Economic Policy Research (CEPR)

Katharina Lewellen

Dartmouth College - Tuck School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: June 14, 2019

Abstract

This paper revisits the relationship between firm performance and CEO turnover. We drop the distinction between forced and voluntary turnovers and introduce the concept of performance-induced turnover, defined as turnover that would not have occurred had performance been “good”. We document a close link between performance and CEO turnover and estimate that between 38% and 55% of all turnovers are performance induced, with an even higher percentage early in tenure. This is significantly more than the number of forced turnovers identified in prior studies. Compared to the predictions of Bayesian learning models of CEO turnover, learning by boards about CEO ability appears to be slow, and boards act as if CEO ability (or match quality) was subject to frequent and sizeable shocks.

Keywords: CEO Turnover, Board of Directors, Governance

JEL Classification: G34

Suggested Citation

Jenter, Dirk and Lewellen, Katharina, Performance-Induced CEO Turnover (June 14, 2019). Available at SSRN: https://ssrn.com/abstract=1570635 or http://dx.doi.org/10.2139/ssrn.1570635

Dirk Jenter (Contact Author)

London School of Economics & Political Science (LSE) - Department of Finance ( email )

United Kingdom

HOME PAGE: http://personal.lse.ac.uk/jenter/

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Katharina Lewellen

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

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