Executive turnover – Firms’ subsequent performances and the moderating role of organizational characteristics

Abstract

I apply context-emergent turnover (CET) theory to investigate how different organizational characteristics moderate the effect of executive turnover on firm performance. I suggest and investigate different organizational characteristics as contextual factors. I find that executive turnover reduces future sales and employment growth, and show that three organizational characteristics (the firm's age, top management tenure, and employee tenure) moderate this effect. These results contribute to our understanding of the role of context in moderating executive turnover. Previous studies that examined the performance effects of executive turnover have often struggled to prove the causality between this event and a firms' post-turnover performance conclusively. The problem is that executive turnover is often correlated with a firm's current performance and expected future challenges. I address this endogeneity problem by exploiting the exogenous variation in firms' performances following 516 top managers' unexpected deaths. I use a matched sample to investigate which organizational characteristics that mitigate the negative effect on the firms' subsequent performances resulting from these executive turnovers. I obtained this sample randomly from a comprehensive dataset containing yearly observations of all Danish firms from 1995 to 2007.