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How Does Forced-CEO-Turnover Experience Affect Directors?

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  • Ellis, Jesse
  • Guo, Lixiong
  • Mobbs, Shawn

Abstract

We study changes in independent director behavior and labor-market outcomes after the experience of a forced Chief Executive Officer (CEO) turnover. We find that independent directors are more willing to fire CEOs of underperforming firms, hire outside CEOs after a firing, and encourage better board-meeting attendance by fellow directors. We also find that the shareholders of poorly performing firms react positively when experienced directors join the board. It does come with a small cost for directors, in terms of additional directorships, although the cost is not as great as that for directors who do not fire the CEO of a poorly performing firm.

Suggested Citation

  • Ellis, Jesse & Guo, Lixiong & Mobbs, Shawn, 2021. "How Does Forced-CEO-Turnover Experience Affect Directors?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 56(4), pages 1163-1191, June.
    • Handle: RePEc:cup:jfinqa:v:56:y:2021:i:4:p:1163-1191_2
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    Cited by:

    1. Li, Siyuan & Qu, Tianshu Charlotte & Yu, Yingri Julia, 2022. "Outside director social network centrality and turnover before stock performance crash: A friend in need?," Journal of Corporate Finance, Elsevier, vol. 76(C).
    2. Chen, Chen & Dou, Ying & Kuang, Yu Flora & Naiker, Vic, 2023. "Do professional ties enhance board seat prospects of independent directors with tainted reputations?," Journal of Banking & Finance, Elsevier, vol. 154(C).
    3. Cook, Douglas O. & Zhang, Weiwei, 2023. "CEO performance impact on medical leave outcomes," Journal of Banking & Finance, Elsevier, vol. 154(C).

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