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The evolution of boards and CEOs following performance declines

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  • Easterwood, John C.
  • İnce, Özgür Ş.
  • Raheja, Charu G.

Abstract

This paper examines the evolution of corporate boards following a large performance decline. Over 40% of the original directors depart the board during the three years following underperformance. Measures of initial CEO influence over the board such as CEO ownership are associated with smaller increases in board independence and less board turnover. The underperforming firms undergo a strong recovery subsequently, with the largest performance improvement occurring among firms that experience no turnover on their boards and among firms that do not change their board independence. We conclude that the large board turnover experienced by underperforming firms presents significant challenges for subsequent recovery.

Suggested Citation

  • Easterwood, John C. & İnce, Özgür Ş. & Raheja, Charu G., 2012. "The evolution of boards and CEOs following performance declines," Journal of Corporate Finance, Elsevier, vol. 18(4), pages 727-744.
    • Handle: RePEc:eee:corfin:v:18:y:2012:i:4:p:727-744
    DOI: 10.1016/j.jcorpfin.2012.05.006
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    More about this item

    Keywords

    Corporate governance; CEO influence; Performance; Board structure; Director turnover; Financial distress;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G3 - Financial Economics - - Corporate Finance and Governance

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