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

See all articles by George Alexandridis

George Alexandridis

ICMA Centre, Henley Business School

John A. Doukas

Old Dominion University - Strome College of Business

Christos P. Mavis

University of Surrey - Surrey Business School

Date Written: May 8, 2018

Abstract

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

Alexandridis, George and Doukas, John A. and Mavis, Christos P., Does Firing a CEO Pay Off? (May 8, 2018). Financial Management, Vol. 48, pp. 03-43, 2019. Available at SSRN: https://ssrn.com/abstract=3175330

George Alexandridis

ICMA Centre, Henley Business School ( email )

Whiteknights Campus
P.O. Box 242
Reading, RG6 6BA
United Kingdom
+44 (0) 118 378 4387 (Phone)

John A. Doukas

Old Dominion University - Strome College of Business ( email )

2080 Constant Hall
Suite 2080
Norfolk, VA 23529-0222
United States
757-683-5521 (Phone)

HOME PAGE: http://www.efmaefm.org/0DOUKAS/doukas.php

Christos P. Mavis (Contact Author)

University of Surrey - Surrey Business School ( email )

Guildford, Surrey GU2 7XH
United Kingdom

HOME PAGE: http://www.surrey.ac.uk/people/christos-p-mavis

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