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CEO Turnover and Relative Performance EvaluationDirk JenterLondon School of Economics; National Bureau of Economic Research (NBER); CEPR Fadi KanaanMassachusetts Institute of Technology (MIT) - Sloan School of Management 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 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.
Number of Pages in PDF File: 34 Keywords: CEO Turnover, Performance Evaluation, Corporate Boards JEL Classification: G30, G34, D20, D23, M51 Date posted: February 17, 2006 ; Last revised: June 7, 2014Suggested CitationContact Information
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