Management Turnover in Stock Market Winners and Losers: A Clinical Investigation

Abstract

This paper investigates management turnover among the top and bottom stock market performers of the UK FT500 using clinical methodology. Consistent with previous research, we find that management turnover is higher among poor stock market performers. We identify forced departures through a new and improved method involving a close scrutiny of cases and firms, and find different types of forced departures. While the study finds evidence of management monitoring among poor stock market performers, it also reveals that only 37% of all the forced departures are cases of monitoring. Monitoring seems to occur in far fewer cases than suggested by previous research. However, forced departures may not be the best proxy for management monitoring. The purpose of monitoring is to realign interests, not to fire the manager. Successful management monitoring need not necessarily lead to executive departures.

Keywords: Top Management Turnover, Firm Performance, Forced Departures, Corporate governance, Clinical Research

JEL Classification: G34, G39, M51