How Performance Expectations Affect Managerial Replacement Decisions

27 Pages Posted: 5 Dec 2010 Last revised: 3 Jul 2012

See all articles by Egon P. Franck

Egon P. Franck

University of Zurich - Department of Business Administration (IBW)

Stephan Nüesch

University of Muenster

Jan Pieper

University of Zurich

Date Written: June 21, 2012

Abstract

In this paper, we empirically investigate how performance expectations affect top manager replacements. Specifically, we approximate unobservable performance expectations based on professional bookmaker betting odds on matches of the highest German soccer league, the Bundesliga, to capture the effect on the dismissal probability of team coaches. Soccer coaches, like top managers in other industries, are typically held accountable for the performance of their organization although their idiosyncratic contributions are not exactly measurable. Betting odds are highly immune to opportunistic manipulations on behalf of the coaches and provide accurate predictions of match outcomes. We show that an increase of performance expectations in the previous match by one standard deviation nearly doubles the dismissal probability of the coach, controlling for team performance and unobserved team heterogeneity. We consider our study to be a strong test for the impact of performance expectations on managerial replacements because accurate performance measures are available at frequent intervals in the controlled field environment of professional soccer. In other managerial contexts, in which performance measurement is typically noisier, the expectation effect should be even stronger. The limitations of transferability are also discussed.

Keywords: Betting odds, board of directors, performance expectations, professional team sports, top manager dismissals

JEL Classification: D84, J44, J63

Suggested Citation

Franck, Egon P. and Nüesch, Stephan and Pieper, Jan, How Performance Expectations Affect Managerial Replacement Decisions (June 21, 2012). Available at SSRN: https://ssrn.com/abstract=1719561 or http://dx.doi.org/10.2139/ssrn.1719561

Egon P. Franck

University of Zurich - Department of Business Administration (IBW) ( email )

Plattenstrasse 14
Zurich 8032
Switzerland
+41 1 634 28 45 (Phone)

Stephan Nüesch

University of Muenster ( email )

Schlossplatz 2
Muenster, D-48149
Germany

HOME PAGE: http://www.wiwi.uni-muenster.de/uf

Jan Pieper (Contact Author)

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

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