CEO Tenure and Firm Value

72 Pages Posted: 3 Jul 2015 Last revised: 23 May 2019

See all articles by Francois Brochet

Francois Brochet

Boston University - Department of Accounting

Peter Limbach

University of Cologne and Centre for Financial Research (CFR)

Markus Schmid

University of St. Gallen - Swiss Institute of Banking and Finance; University of St. Gallen - School of Finance

Meik Scholz-Daneshgari

Karlsruhe Institute of Technology

Date Written: May 22, 2019

Abstract

Our study is the first to provide systematic evidence of a hump-shaped CEO tenure-firm value relation. This pattern is supported by announcement returns to sudden CEO deaths, which mitigate endogeneity concerns. Cross-sectionally, firm value starts to decline after fewer years of CEO tenure in more dynamic industries and if CEOs are less adaptable to changes. Return on assets appears to increase for several years past the firm value turning point, whereas accrual quality declines coincidentally with firm value. In contrast, earnings smoothing and analyst-based earnings surprises increase monotonically over CEO tenure. Combined, those patterns suggest that CEOs attempt to obfuscate their declining performance through reporting discretion. Overall, CEO-firm match quality and CEO adaptability appear to be first-order drivers of the CEO tenure-firm value association, whereas reporting discretion significantly influences accounting-based performance patterns.

Keywords: CEO adaptability, corporate governance regulation, entrenchment, environmental dynamics, financial reporting quality, firm value

JEL Classification: G30, G34, J24

Suggested Citation

Brochet, Francois and Limbach, Peter and Schmid, Markus and Scholz-Daneshgari, Meik, CEO Tenure and Firm Value (May 22, 2019). Paris December 2015 Finance Meeting EUROFIDAI - AFFI; University of St.Gallen, School of Finance Research Paper No. 2015/11. Available at SSRN: https://ssrn.com/abstract=2626340 or http://dx.doi.org/10.2139/ssrn.2626340

Francois Brochet

Boston University - Department of Accounting ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States

Peter Limbach (Contact Author)

University of Cologne and Centre for Financial Research (CFR) ( email )

Albertus-Magnus-Platz
Köln, 50923
Germany

HOME PAGE: http://www.finance.uni-koeln.de

Markus Schmid

University of St. Gallen - Swiss Institute of Banking and Finance ( email )

Rosenbergstrasse 52
St. Gallen, 9000
Switzerland

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

Meik Scholz-Daneshgari

Karlsruhe Institute of Technology ( email )

Kaiserstraße 12
Karlsruhe, Baden Württemberg 76128
Germany

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