Replacement of Executives and Corporate Culture

Abstract

Soccer coaches can easily be compared to CEOs as they operate in almost the same (or even stiffer) environment. Sports provides an ideal real world experiment to measure the effect of top-management changes. A statistical analysis of the results of 1979 games in Austria's Premier Soccer League finds that the much discussed coach effect does not exist, i.e. replacing a coach after poor performance does not affect the performance of the soccer team. This observation is used to draw inferences on CEO replacement. The analogy for replaced CEOs can be made by thinking about corporate culture. Since the change of the coach does not affect the composition of the team, replacing a CEO does not change the culture of the firm immediately. Nevertheless, replacement is necessary for providing incentives for high efforts ex-ante.

Keywords: CEO replacement, Sports, Corporate Culture, Incentives

JEL Classification: M12, M14, L83, F23