Powerful CEOs in Uncertain Times: Survival of the Fittest

Abstract

In contrast to the widespread concern about excessive CEO power, this paper examines whether powerful CEOs are more beneficial and desirable under uncertainty. I document that powerful CEOs have a lower dismissal rate in uncertain times. With better performance but no increased compensation, they are likely retained optimally for their effectiveness under uncertainty rather than by entrenched power. Two mechanisms potentially explain why powerful CEOs are more effective under uncertainty: they are more willing to share information with the board, and more capable of taking swift action. My findings support optimal dismissal theory, highlighting that powerful CEOs' effectiveness increases with uncertainty.

Keywords: Corporate governance, CEO power, Uncertainty, CEO turnover

JEL Classification: G14, G34, M12