34 Pages Posted: 17 Feb 2006 Last revised: 7 Jun 2014
Date Written: April 15, 2014
This paper shows that CEOs are fired after bad firm performance caused by factors beyond their control. Standard economic theory predicts that corporate boards filter out exogenous industry and market shocks from firm performance before deciding on CEO retention. Using a hand-collected sample of 3,365 CEO turnovers from 1993 to 2009, we document that CEOs are significantly more likely to be dismissed from their jobs after bad industry and, to a lesser extent, after bad market performance. A decline in industry performance from the 90th to the 10th percentile doubles the probability of a forced CEO turnover.
Keywords: CEO Turnover, Performance Evaluation, Corporate Boards
JEL Classification: G30, G34, D20, D23, M51
Suggested Citation: Suggested Citation
Jenter, Dirk and Kanaan, Fadi, CEO Turnover and Relative Performance Evaluation (April 15, 2014). Stanford University Graduate School of Business Research Paper No. 1992; MIT Sloan Research Paper No. 4594-06; Rock Center for Corporate Governance Working Paper No. 24. Available at SSRN: https://ssrn.com/abstract=885531 or http://dx.doi.org/10.2139/ssrn.885531
By Kevin Murphy