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Corporate culture and CEO turnover

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  • Fiordelisi, Franco
  • Ricci, Ornella

Abstract

We study the effect of corporate culture on the relationship between firm performance and CEO turnover. Utilising a measure of cultural dimension developed in organisation behaviour research, we quantify corporate culture by assessing official documents using a text analysis approach. We employ this quantification to examine the impact of culture on CEO turnover, especially in the case of poor firm-specific performance. First, we find strong evidence of a negative relationship between firm-specific performance and CEO turnover. Second, we demonstrate that the probability of a CEO change, on average, is positively influenced by the competition- and creation-oriented cultures. The negative relationship between firm-specific performance and CEO turnover is reinforced by the control-oriented culture and reduced by the creation-oriented culture. Finally, we study the CEO insider or outsider succession and observe that the creation-oriented culture has a negative relationship with the probability of hiring an outsider. Moreover, the creation-oriented culture weakens the negative relationship existing between the firm-specific performance under the incumbent CEO and the probability of hiring an outsider.

Suggested Citation

  • Fiordelisi, Franco & Ricci, Ornella, 2014. "Corporate culture and CEO turnover," Journal of Corporate Finance, Elsevier, vol. 28(C), pages 66-82.
    • Handle: RePEc:eee:corfin:v:28:y:2014:i:c:p:66-82
    DOI: 10.1016/j.jcorpfin.2013.11.009
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    More about this item

    Keywords

    Corporate culture; Text analysis; Corporate governance; CEO;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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