CEO Turnover and Director Reputation
83 Pages Posted: 8 Feb 2021 Last revised: 2 May 2022
Date Written: March 30, 2022
This paper analyzes the reputational effects of forced CEO turnovers on outside directors. Directors interlocked to a forced CEO turnover experience large and persistent increases in withheld votes at subsequent re-elections relative to non-turnover-interlocked directors. Reputational losses are larger for turnovers with a higher potential for disrupting a firm's management, for directors favorably inclined to the CEO, and for directors with a committee-based responsibility for monitoring the CEO. Our results imply that the average forced CEO turnover signals a governance failure at the board level, and that shareholders rely on salient actions to update their beliefs about directors' hidden qualities.
Keywords: CEO turnover, director elections, director reputation, CEO succession, shareholder voting
JEL Classification: G32, G34
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