Promotions, Turnover, and Performance Evaluation: Evidence from the Careers of Division Managers

Cichello, Michael; Fee, C. Edward; Hadlock, Charles J.; Sonti, Ramana

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Promotions, Turnover, and Performance Evaluation: Evidence from the Careers of Division Managers

Accounting Review, Vol. 84, No. 4, pp. 1119-1143, July 2009

42 Pages Posted: 21 Mar 2006 Last revised: 3 Nov 2009

See all articles by Michael Cichello

C. Edward Fee

Tulane University - A.B. Freeman School of Business

Ramana Sonti

Indian School of Business

Date Written: December 16, 2008

Abstract

We study turnover and promotions of division managers in multidivisional firms. Turnover is negatively related to divisional accounting performance, positively related to industry performance, but not significantly related to firm performance or the performance of other divisions. Consistent with tournament theory, promotions are significantly related to whether one division is performing better than others, but are not significantly related to the magnitude of any performance difference. A simple performance metric, divisional ROA, appears more closely related to job allocation decisions than several alternatives. Our evidence is consistent with the hypothesis that accounting information is used by firms when evaluating managerial personnel.

Keywords: Turnover, Promotions, Internal labor markets, Performance measurement, Division managers

JEL Classification: J41, G34, M40, M46, M51, L22

Suggested Citation: Suggested Citation

Cichello, Michael and Fee, C. Edward and Hadlock, Charles J. and Sonti, Ramana, Promotions, Turnover, and Performance Evaluation: Evidence from the Careers of Division Managers (December 16, 2008). Accounting Review, Vol. 84, No. 4, pp. 1119-1143, July 2009, Available at SSRN: https://ssrn.com/abstract=892361