Does Firing a CEO Pay Off?
Financial Management, Vol. 48, pp. 03-43, 2019
54 Pages Posted: 22 May 2018 Last revised: 6 Mar 2019
Date Written: May 8, 2018
We examine whether involuntary CEO replacements pay off by improving firm prospects. We find CEO successors’ acquisition investments to be associated with significantly higher shareholder gains relative to their predecessors and the average CEO. This improvement in post-turnover acquisition performance appears to be a function of board independence, hedge fund ownership, and the new CEO’s relative experience. CEO successors also create sizeable shareholder value by reversing prior investments through asset disposals and discontinuing operations and by employing more efficient investment strategies. Our evidence suggests that firing a CEO pays off.
Keywords: CEO turnovers, Acquisition performance, Divestitures, Corporate governance, CEO experience, Hedge funds
JEL Classification: D23, G30, G34, M51
Suggested Citation: Suggested Citation