CEO Turnover, Network Effects, and Firm Performance

Abstract

This study applies network and organizational theory to examine the effect of CEO turnover on firms' accounting performance and market performance in both the short-term and the long-term. In addition, this study investigates the moderating role of network effects using cluster analysis.Using a system generalized method of moments (GMM) estimation of panel data obtained from Compustat and S&P's Execucomp database, this study finds that firms with frequent CEO turnover are less likely to have superior performance, in the long-term. This study also finds that firms that have CEO turnover are more likely to have better accounting performance over the short-term, but less likely to have superior market performance. In addition, this study found that network effects moderate the relationship between CEO turnover and firm performance, and generally play an opposite moderating role between the long-term and the short-term.This study contributes to the research by providing new insights of CEO turnover effects on firm performance and investigating the moderation effects of network structure on firm performance. The findings in this study also provide practical suggestions for firms that have frequent changes of CEO.