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Performance-Induced CEO Turnover

Author

Listed:
  • Jenter, Dirk

    (Stanford University)

  • Lewellen, Katharina

Abstract

This paper re-examines the relationship between firm performance and CEO turnover. We do away with the distinction between forced and voluntary turnovers and introduce the concept of performance-induced turnover, defined as turnover that would not have occurred had performance been better. We show that more than 40% of all CEO turnovers are performance induced, and more than 50% of turnovers in the first eight tenure years. This far exceeds the frequency of forced turnovers identified in prior studies. We also find that the effects of performance on turnover are as high in the first five tenure years as in the next five, and that the effects decline only after tenure year 10. Further, CEO departures in all tenure years respond strongly to recent performance but are almost insensitive to performance in the more distant past. These results reject the standard model of CEO turnover in which boards learn from firm performance about constant CEO ability.

Suggested Citation

  • Jenter, Dirk & Lewellen, Katharina, 2014. "Performance-Induced CEO Turnover," Research Papers 3054, Stanford University, Graduate School of Business.
    • Handle: RePEc:ecl:stabus:3054
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    File URL: http://www.gsb.stanford.edu/faculty-research/working-papers/performance-induced-ceo-turnover
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    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation
    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions

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