CEO Turnover and Relative Performance Evaluation

34 Pages Posted: 17 Feb 2006 Last revised: 7 Jun 2014

Dirk Jenter

London School of Economics; National Bureau of Economic Research (NBER); CEPR

Fadi Kanaan

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: April 15, 2014

Abstract

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

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

Dirk Jenter (Contact Author)

London School of Economics ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

HOME PAGE: http://personal.lse.ac.uk/jenter/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

CEPR ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Fadi Kanaan

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

50 Memorial Drive
Cambridge, MA 02142
United States

Paper statistics

Downloads
2,643
Rank
3,198
Abstract Views
9,959