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CEO turnover in a competitive assignment framework

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  • Eisfeldt, Andrea L.
  • Kuhnen, Camelia M.

Abstract

There is widespread concern about whether Chief Executive Officers (CEOs) are appropriately punished for poor performance. While CEOs are more likely to be forced out if their performance is poor relative to the industry average, overall industry performance also matters. This seems puzzling if termination is disciplinary, however, we show that both absolute and relative performance-driven turnover can be natural and efficient outcomes in a competitive assignment model in which CEOs and firms form matches based on multiple characteristics. The model also has new predictions about replacement managers' equilibrium pay and performance. We document CEO turnover events during 1992–2006 and provide empirical support for our model.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Financial Economics.

Volume (Year): 109 (2013)
Issue (Month): 2 ()
Pages: 351-372

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Handle: RePEc:eee:jfinec:v:109:y:2013:i:2:p:351-372

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Web page: http://www.elsevier.com/locate/inca/505576

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Keywords: CEO turnover; Competitive assignment;

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Citations

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Cited by:
  1. Florian S. PETERS & Alexander F. WAGNER, 2008. "The executive turnover risk premium," Swiss Finance Institute Research Paper Series 08-11, Swiss Finance Institute.
  2. Pierre Chaigneau & Nicolas Sahuguet, 2013. "The effect of monitoring on CEO pay practices in a matching equilibrium," LSE Research Online Documents on Economics 55405, London School of Economics and Political Science, LSE Library.
  3. Giannetti, Mariassunta, 2011. "Serial CEO incentives and the structure of managerial contracts," Journal of Financial Intermediation, Elsevier, vol. 20(4), pages 633-662, October.
  4. Edmans, Alex & Gabaix, Xavier, 2010. "Risk and the CEO Market: Why Do Some Large Firms Hire Highly-Paid, Low-Talent CEOs?," CEPR Discussion Papers 7836, C.E.P.R. Discussion Papers.
  5. William Mullins & Antoinette Schoar, 2013. "How do CEOs see their Role? Management Philosophy and Styles in Family and Non-Family Firms," NBER Working Papers 19395, National Bureau of Economic Research, Inc.
  6. Pierre Chaigneau & Nicolas Sahuguet, 2014. "Explaining the Association between Monitoring and Controversial CEO Pay Practices: an Optimal Contracting Perspective," Cahiers de recherche 1406, CIRPEE.
  7. Geoffrey Tate & Liu Yang, 2013. "The Bright Side Of Corporate Diversification: Evidence From Internal Labor Markets," Working Papers 13-40, Center for Economic Studies, U.S. Census Bureau.
  8. Ronald W. Anderson & Maria Cecilia Bustamante & Stéphane Guibaud, 2012. "Agency, firm growth, and managerial turnover," LSE Research Online Documents on Economics 43144, London School of Economics and Political Science, LSE Library.
  9. Keloharju, Matti & Knüpfer, Samuli, 2014. "Match Made at Birth? What Traits of a Million Swedes Tell Us about CEOs," Working Paper Series 1024, Research Institute of Industrial Economics.
  10. Ronald W. Anderson & M. Cecilia Bustamante & Stéphane Guibaud, 2012. "Agency, Firm Growth, and Managerial Turnover," FMG Discussion Papers dp711, Financial Markets Group.
  11. Edmans, Alex & Gabaix, Xavier, 2010. "Risk and CEO Market: Why Do Some Large Firms Hire Highly-Paid, Low-Talent CEOs?," Working Papers 10-17, University of Pennsylvania, Wharton School, Weiss Center.
  12. Simeon Alder, 2010. "In the Wrong Hands: Complementarities, Resource Allocation, and TFP," Working Papers 018, University of Notre Dame, Department of Economics, revised Nov 2012.

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