A Theory of Corporate Boards and Forced CEO Turnover

Forthcoming in Management Science

87 Pages Posted: 23 Jul 2010 Last revised: 21 Dec 2016

See all articles by Thomas J. Chemmanur

Thomas J. Chemmanur

Boston College - Carroll School of Management

Viktar Fedaseyeu

China Europe International Business School (CEIBS)

Date Written: December 20, 2016

Abstract

We model a corporate board evaluating a CEO of uncertain management ability. Each director receives a noisy private signal about CEO ability, after which directors discuss this ability and vote to retain or replace the CEO. Directors care about true CEO ability, since it affects their equity holding values; however, a CEO may impose costs of dissent on a director who votes to fire but fails to oust her. We relate the equilibrium CEO firing decision to board size, board composition, the effect of an imprecise public signal, and the cost and probability of finding a good replacement CEO.

Keywords: CEO turnover; board of directors; board member discussions; corporate governance

JEL Classification: G34

Suggested Citation

Chemmanur, Thomas J. and Fedaseyeu, Viktar, A Theory of Corporate Boards and Forced CEO Turnover (December 20, 2016). Forthcoming in Management Science. Available at SSRN: https://ssrn.com/abstract=1647645 or http://dx.doi.org/10.2139/ssrn.1647645

Thomas J. Chemmanur

Boston College - Carroll School of Management ( email )

Finance Department, 436 Fulton Hall
Carroll School of Management, Boston College
Chestnut Hill, MA 02467-3808
United States
617-552-3980 (Phone)
617-552-0431 (Fax)

HOME PAGE: http://https://www2.bc.edu/thomas-chemmanur/

Viktar Fedaseyeu (Contact Author)

China Europe International Business School (CEIBS) ( email )

Shanghai-Hongfeng Road
Shanghai 201206
Shanghai 201206
China

HOME PAGE: http://https://www.ceibs.edu/fviktar

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