Is CEO Turnover Sensitive to Firm Performance? An Informativeness Perspective

Abstract

This study advances an informativeness perspective to contribute to the understanding of how the sensitivity of CEO turnover to firm performance changes over the course of CEO tenure. The extant literature primarily suggests that the sensitivity of CEO turnover to firm performance weakens over time during a CEO’s tenure and attributes this change to the power shift in the CEO-board relationship. Supplementing this dominant power perspective, we suggest that the attributability, informativeness, and impact of firm performance in boards’ assessment of CEOs change during the early, mid-, and later stage of CEO tenure, even when there is no power shift in the CEO-board relationship. Using a sample of family-controlled firms in Taiwan from 1999 to 2015, we found that the effect of current firm performance on the turnover of professional CEOs was the strongest during the mid-stage and weaker during both the early and the later stages. These results provide support for our theoretical predictions from the informativeness perspective.