The Evolution of Boards and CEOs Following Performance Declines

54 Pages Posted: 12 Jan 2014

See all articles by John C. Easterwood

John C. Easterwood

Virginia Polytechnic Institute & State University - Pamplin College of Business

Ozgur Ince

University of South Carolina - Moore School of Business

Charu G. Raheja

Wake Forest University

Date Written: March 6, 2012

Abstract

This paper examines the evolution of corporate boards following a large performance decline. Over 40% of the original directors depart the board during the three years following underperformance. Measures of initial CEO influence over the board such as CEO ownership are associated with smaller increases in board independence and less board turnover. The underperforming firms undergo a strong recovery subsequently, with the largest performance improvement occurring among firms that experience no turnover on their boards and among firms that do not change their board independence. We conclude that the large board turnover experienced by underperforming firms presents significant challenges for subsequent recovery.

Keywords: Corporate governance, CEO influence, Performance, Board structure, Director turnover, Financial distress

JEL Classification: G34, G3

Suggested Citation

Easterwood, John C. and Ince, Ozgur S. and Raheja, Charu G., The Evolution of Boards and CEOs Following Performance Declines (March 6, 2012). Journal of Corporate Finance, Vol. 18, No. 4, 2012. Available at SSRN: https://ssrn.com/abstract=2377812

John C. Easterwood (Contact Author)

Virginia Polytechnic Institute & State University - Pamplin College of Business ( email )

Dept. of Finance
Blacksburg, VA 24061
United States
540-231-5904 (Phone)
540-231-4487 (Fax)

Ozgur S. Ince

University of South Carolina - Moore School of Business ( email )

1014 Greene Street
Columbia, SC 29208
United States
(803) 777-4905 (Phone)

Charu G. Raheja

Wake Forest University ( email )

P.O. Box 7659
Winston-Salem, NC 27109-7659
United States

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