Forthcoming in Management Science
87 Pages Posted: 23 Jul 2010 Last revised: 21 Dec 2016
Date Written: December 20, 2016
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: 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