Performance-Induced CEO Turnover. (15th June 2020)

• Record Type: Journal Article
• Authors: Jenter, Dirk; Lewellen, Katharina
• Editors: Denis, David
• Is Part Of: Review of financial studies. Volume 34:Number 2(2021)
• Page Start: 569
• Page End: 617
• Publication Date: 2020-06-15
• Subjects: G30 -- G34 -- M12; Finance -- United States -- Periodicals; Finance -- Periodicals; 332
• DOI: 10.1093/rfs/hhaa069
• Languages: English
• ISSNs: 0893-9454

Abstract

Abstract: This paper revisits the relationship between firm performance and CEO turnover. Instead of classifying turnovers into forced and voluntary, we introduce performance-induced turnover, defined as turnover that would not have occurred had performance been "good." We document a close turnover-performance link and estimate that 38%–55% of turnovers are performance induced. This is significantly more than the number of forced turnovers, though the two types of turnovers are highly correlated. Compared to the predictions of Bayesian learning models, learning about CEO ability appears to be slow, and boards act as if CEO ability (or match quality) was subject to frequent shocks.