Discussion Paper Details

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Title: Performance-induced CEO turnover

Author(s): Dirk Jenter and Katharina A. Lewellen

Publication Date: September 2017

Keyword(s): CEO turnover, CEO-firm matching, corporate governance and turnover-performance relationship

Programme Area(s): Financial Economics and Labour Economics

Abstract: This paper revisits the relationship between firm performance and CEO turnover. We drop 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 "good". We document a close link between performance and CEO turnover and estimate that between 38% and 55% of all turnovers are performance induced, with an even higher percentage early in tenure. This is significantly more than the number of forced turnovers identified in prior studies. We contrast the empirical properties of performance-induced turnovers with the predictions of Bayesian learning models of CEO turnover. Learning by boards about CEO ability appears to be slow, and boards act as if CEO ability (or match quality) was subject to frequent and sizeable shocks.

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Bibliographic Reference

Jenter, D and Lewellen, K. 2017. 'Performance-induced CEO turnover'. London, Centre for Economic Policy Research.