Disagreement-induced CEO Turnover

Forthcoming, Journal of Financial Intermediation

55 Pages Posted: 5 Feb 2019

See all articles by Sheng Huang

Sheng Huang

China Europe International Business School (CEIBS)

Johan Maharjan

Rensselaer Polytechnic Institute (RPI)

Anjan V. Thakor

Washington University, Saint Louis - John M. Olin School of Business; European Corporate Governance Institute (ECGI)

Date Written: December 3, 2018


We propose and test a new explanation for forced CEO turnover, and examine its implications for the impact of firm performance on CEO turnover. Investors may disagree with management on optimal decisions due to heterogeneous prior beliefs. Theory suggests that such disagreement may be persistent and costly to firms; we document that this induces them to sometimes replace CEOs who investors disagree with, controlling for firm performance. A lower level of CEO-investor disagreement serves to partially “protect” CEOs from being fired, thus reducing turnover-performance sensitivity, which we also document. We also show that firms are more likely to hire an external CEO as a successor if disagreement with the departing CEO is higher. Disagreement declines following forced CEO turnover. Using various empirical strategies, we rule out other confounding interpretations of our findings. We conclude that disagreement, independently of firm performance, affects forced CEO turnover.

Keywords: Investor-management disagreement, heterogeneous beliefs, CEO turnover, corporate governance

JEL Classification: G30, G34

Suggested Citation

Huang, Sheng and Maharjan, Johan and Thakor, Anjan V., Disagreement-induced CEO Turnover (December 3, 2018). Forthcoming, Journal of Financial Intermediation, Available at SSRN: https://ssrn.com/abstract=3320832 or http://dx.doi.org/10.2139/ssrn.3320832

Sheng Huang

China Europe International Business School (CEIBS) ( email )

Shanghai-Hongfeng Road
Shanghai 201206
Shanghai 201206

Johan Maharjan

Rensselaer Polytechnic Institute (RPI) ( email )

Troy, NY 12180
United States

Anjan V. Thakor (Contact Author)

Washington University, Saint Louis - John M. Olin School of Business ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels

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