Abstract
We document that the number of past quarterly performance surprises: earnings decreases, negative analysts' forecast errors, and negative stock returns, are positively related to the likelihood of CEO dismissal. This relation declines over a CEO's tenure, consistent with performance surprises revealing information about uncertain managerial ability. We also show that CEO tenure affects firm governance characteristics: tenure is positively associated with CEO ownership and CEO-chair duality, and negatively associated with board independence. Results suggest that periodic performance reports increasingly resolve uncertainty about managerial ability thereby affecting a firm's demand for monitoring its CEO over the CEO's tenure.
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