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CEO tenure and the performance-turnover relation

Author

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  • Shane S. Dikolli

    (Duke University)

  • William J. Mayew

    (Duke University)

  • Dhananjay Nanda

    (University of Miami)

Abstract

In a broad cross-section of US firms, we document that the likelihood of a CEO’s performance-related dismissal declines in his tenure. This finding is consistent with both firm performance revealing information about a CEO’s uncertain executive ability and CEO tenure reflecting weak firm governance choices that reduce the likelihood of performance-related dismissal. In a sample of CEOs who begin their appointment during our sample period, we find evidence more broadly in favor of the former explanation. Specifically, we find that (1) CEO survival is associated with superior firm performance, (2) this relation is unaffected by firm governance choices, (3) the intensity with which a firm monitors its CEO declines over his tenure, and (4) firms’ monitoring intensity increases following CEO turnover. Collectively, our results suggest that periodic performance reports increasingly resolve uncertainty regarding executive ability, thereby lowering firm owners’ demand for monitoring their CEO over his tenure.

Suggested Citation

  • Shane S. Dikolli & William J. Mayew & Dhananjay Nanda, 2014. "CEO tenure and the performance-turnover relation," Review of Accounting Studies, Springer, vol. 19(1), pages 281-327, March.
    • Handle: RePEc:spr:reaccs:v:19:y:2014:i:1:d:10.1007_s11142-013-9247-6
    DOI: 10.1007/s11142-013-9247-6
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    JEL classification:

    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions

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