Performance-Induced CEO Turnover

57 Pages Posted: 11 Sep 2017

See all articles by Dirk Jenter

Dirk Jenter

London School of Economics & Political Science (LSE) - Department of Finance; Centre for Economic Policy Research (CEPR)

Katharina Lewellen

Dartmouth College - Tuck School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: September 2017

Abstract

This paper revisits the relationship between firm performance and CEO turnover. We drop the distinction between forced and voluntary turnovers and introduce the concept of performance-induced turnover, defined as turnover that would not have occurred had performance been "good". We document a close link between performance and CEO turnover and estimate that between 38% and 55% of all turnovers are performance induced, with an even higher percentage early in tenure. This is significantly more than the number of forced turnovers identified in prior studies. We contrast the empirical properties of performance-induced turnovers with the predictions of Bayesian learning models of CEO turnover. Learning by boards about CEO ability appears to be slow, and boards act as if CEO ability (or match quality) was subject to frequent and sizeable shocks.

Keywords: CEO turnover, CEO-firm matching, corporate governance, turnover-performance relationship

JEL Classification: D22, D23, G34, J63, M12, M51

Suggested Citation

Jenter, Dirk and Lewellen, Katharina, Performance-Induced CEO Turnover (September 2017). CEPR Discussion Paper No. DP12274, Available at SSRN: https://ssrn.com/abstract=3035268

Dirk Jenter (Contact Author)

London School of Economics & Political Science (LSE) - Department of Finance ( email )

United Kingdom

HOME PAGE: http://personal.lse.ac.uk/jenter/

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Katharina Lewellen

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

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