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How Has CEO Turnover Changed? Increasingly Performance Sensitive Boards and Increasingly Uneasy CEOs

  • Kaplan, Steven N.

    (U of Chicago)

  • Minton, Bernadette A.

    (Ohio State U)

We study CEO turnover--both internal (board driven) and external (through takeover and bankruptcy)--from 1992 to 2004 for a sample of large U.S. companies. Annual CEO turnover is higher than that estimated in previous studies over earlier periods. Turnover is 14.5% from 1992 to 2004, implying an average tenure as CEO of less than seven years. In the more recent period since 1998, total CEO turnover increases to 16.1%, implying an average tenure of just over six years. Internal turnover is significantly related to three components of firm performance – performance relative to industry, industry performance relative to the overall market, and the performance of the overall stock market. The relation of internal turnover to performance intensifies after 1997 in that turnover after 1998 is more strongly related to all three measures of performance in the contemporaneous year. External turnover is also related to all three measures of performance over the entire sample period, but there is not a sharp difference between the two sub-periods. We discuss the implications of these finding for various issues in corporate governance.

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File URL: http://www.cob.ohio-state.edu/fin/dice/papers/2006/2006-7.pdf
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Paper provided by Ohio State University, Charles A. Dice Center for Research in Financial Economics in its series Working Paper Series with number 2006-7.

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Date of creation: Jul 2006
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Handle: RePEc:ecl:ohidic:2006-7
Contact details of provider: Phone: (614) 292-8449
Web page: http://www.cob.ohio-state.edu/fin/dice/list.htmEmail:


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  1. Mark R. Huson, 2001. "Internal Monitoring Mechanisms and CEO Turnover: A Long-Term Perspective," Journal of Finance, American Finance Association, vol. 56(6), pages 2265-2297, December.
  2. Dirk Jenter & Fadi Kanaan, 2006. "CEO Turnover and Relative Performance Evaluation," NBER Working Papers 12068, National Bureau of Economic Research, Inc.
  3. Lucian Arye Bebchuk & Jesse M. Fried & David I. Walker, 2002. "Managerial Power and Rent Extraction in the Design of Executive Compensation," NBER Working Papers 9068, National Bureau of Economic Research, Inc.
  4. Garvey, Gerald T. & Milbourn, Todd T., 2006. "Asymmetric benchmarking in compensation: Executives are rewarded for good luck but not penalized for bad," Journal of Financial Economics, Elsevier, vol. 82(1), pages 197-225, October.
  5. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-29, May.
  6. Jay C. Hartzell, 2004. "What's In It for Me? CEOs Whose Firms Are Acquired," Review of Financial Studies, Society for Financial Studies, vol. 17(1), pages 37-61.
  7. Morck, Randall & Shleifer, Andrei & Vishny, Robert W, 1989. "Alternative Mechanisms for Corporate Control," American Economic Review, American Economic Association, vol. 79(4), pages 842-52, September.
  8. Lucian Bebchuk & Yaniv Grinstein, 2005. "The Growth of Executive Pay," NBER Working Papers 11443, National Bureau of Economic Research, Inc.
  9. Paul A. Gompers & Joy L. Ishii & Andrew Metrick, 2001. "Corporate Governance and Equity Prices," NBER Working Papers 8449, National Bureau of Economic Research, Inc.
  10. Ronald W. Masulis & Cong Wang & Fei Xie, 2007. "Corporate Governance and Acquirer Returns," Journal of Finance, American Finance Association, vol. 62(4), pages 1851-1889, 08.
  11. Yermack, David, 2006. "Golden Handshakes: Separation Pay for Retired and Dismissed CEOs," SIFR Research Report Series 41, Institute for Financial Research.
  12. Stulz, ReneM., 1990. "Managerial discretion and optimal financing policies," Journal of Financial Economics, Elsevier, vol. 26(1), pages 3-27, July.
  13. Murphy, Kevin J., 1999. "Executive compensation," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 38, pages 2485-2563 Elsevier.
  14. Marianne Bertrand & Sendhil Mullainathan, 2001. "Are Ceos Rewarded For Luck? The Ones Without Principals Are," The Quarterly Journal of Economics, MIT Press, vol. 116(3), pages 901-932, August.
  15. Sanford Grossman & Oliver Hart, . "Corporate Financial Structure and Managerial Incentives," Rodney L. White Center for Financial Research Working Papers 21-79, Wharton School Rodney L. White Center for Financial Research.
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