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CEO turnover and relative performance evaluation

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  • Jenter, Dirk
  • Kanaan, Fadi

Abstract

This paper shows that CEOs are fired after bad firm performance caused by factors beyond their control. Standard economic theory predicts that corporate boards filter out exogenous industry and market shocks from firm performance before deciding on CEO retention. Using a hand-collected sample of 3,365 CEO turnovers from 1993 to 2009, we document that CEOs are significantly more likely to be dismissed from their jobs after bad industry and, to a lesser extent, after bad market performance. A decline in industry performance from the 90th to the 10th percentile doubles the probability of a forced CEO turnover.

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  • Jenter, Dirk & Kanaan, Fadi, 2015. "CEO turnover and relative performance evaluation," LSE Research Online Documents on Economics 64421, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:64421
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    JEL classification:

    • F3 - International Economics - - International Finance
    • G3 - Financial Economics - - Corporate Finance and Governance

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