CEO Dismissal Research Articles

CEOdismissal: Consequences for the strategic risk taking of competitorCEOs

AbstractResearch SummaryWe propose that CEO dismissal can change the strategic decision‐making of CEOs at competing firms. Competitor CEOs will experience an increase in job insecurity, which motivates them to refrain from strategic risk taking. We also identify two key boundary conditions that shape the influence of CEO dismissal on competitor CEOs' risk taking. We test our ideas on a sample of CEO dismissals among S&P 1500 firms using a novel synthetic control method approach to matching. We also test the underlying theoretical mechanism using a complementary experiment on top executives. Taken together, these studies advance CEO dismissal research by investigating the spillover effect of CEO dismissal on competitor CEOs' behaviors.Managerial SummaryThe position of CEO is more volatile today than ever. When it comes to pulling the trigger on CEO dismissal, companies have increasingly twitchy fingers. Therefore, it seems important to ask: when a company fires their CEO, what happens at all the other companies in the industry? We suggest the CEOs at those companies will start worrying about their job. This fear affects their strategic decision‐making. They dial back on risk and let opportunities for growth slip away. This is especially true for certain competitors. Firing a CEO, therefore, has ripple effects throughout the whole industry.

Does CEO founder status protect against dismissal?

Background: The article adds to the limited literature on CEO turnover in emerging market coun­tries and extends the existing research to a different institutional setting with a particular focus on listed companies in an increasingly important Polish business environment. It deals with the problem of CEO turnover in Polish listed companies.
 Research purpose: Its main purpose is to scrutinize the impact of company performance and managerial ownership on CEO turnover. It focuses on finding the differences in the CEO turnover antecedences of founder CEO and professional CEO dismissal.
 Methods: These relationships were tested using logistic regression. The sample consists of Pol­ish public companies listed on the Main Market of the Warsaw Stock Exchange, encompassing 11 years from 2008 to 2018. The final sample embraces an unbalanced panel sample of 489 com­panies and 3,763 company-year observations.
 Conclusions: The analysis throughout the sample showed that the relationship between firm per­formance and CEO turnover is negative. Thus, deterioration of firm performance increases the frequency of changes in CEO. However, after conducting an in-depth study, it was found that this relationship is statistically significant only when professional managers manage the companies. The relationship between managerial ownership and turnover was also significant and negative in the whole sample. Still, there were also differences between changes in the CEO position, depend­ing on whether it was the company’s founder or a professional manager. In the case of founder CEOs, this relationship was even significant and positive, as opposed to professional managers. This was the same as in the whole sample.

When Does the Board Blame the CEO for Poor Firm Performance? Extreme Resource Reallocation and the Board's Industry and CEO Experience

AbstractThis study sheds light on our understanding of when boards dismiss the CEO by considering the inherent conflict created by the board's advisory role when the firm underperforms. Using a sample of US firms listed in Standard & Poor's ExecuComp for the period 2000–2012 we find that, when a firm underperforms, extreme resource reallocation increases the likelihood of CEO dismissal. This relationship is positively moderated by the board's industry and CEO experience. The study contributes to the literature on corporate governance by identifying the conditions that trigger dismissal of the CEO in light of boards’ motive to protect their reputation.

The impact of hiring directors' choice‐supportive bias and escalation of commitment on CEO compensation and dismissal following poor performance: A multimethod study

AbstractResearch SummaryBoards of directors make high‐stake decisions that involve hiring, compensating, and dismissing CEOs. Building on theory about choice‐supportive bias and escalation of commitment, we theorize that “hiring directors” (directors who were present during a CEO's hiring) will display choice‐supportive bias and escalate commitment to poorly performing CEOs. Primary data from 73 directors indicate that directors are indeed biased toward CEOs they help hire. Archival data from S&P 1500 firms reveal that, following poor performance, the number of hiring directors is positively related to the increase in CEO pay and lower likelihood of CEO dismissal. Building on theory about board experience, we also predict and find that more experienced boards reduce the tendency to escalate. Thus, bias among hiring directors can be mitigated via experience.Managerial SummaryMaking a choice such as casting a vote or selecting a restaurant leads people to view their selection favorably even if evidence emerges suggesting it was a bad choice. We examine whether corporate directors fall prey to this choice‐supportive bias when involved in CEO hiring. We found that directors who are part of the hiring process tend to have an overly rosy view of the person selected. Moreover, if the firm is performing poorly, a board with more directors who helped hire the current CEO will tend to increase the CEO's pay more and are less likely to fire the CEO than a board with fewer such directors. This problem is reduced if the board has highly experienced directors among its ranks.

Changing words: How temporal consistency in a CEO's use of language toward shareholders and stakeholders affects CEO dismissal

ABSTRACTResearch Question/IssueThe present study examines how temporal consistency in the CEO's use of language in public documents affects the board's decision to dismiss the CEO.Research Findings/InsightsUsing CEOs' letters to shareholders from 304 large firms in the United States in 1998–2007, we found that CEO dismissal risk is lower when the CEO consistently uses language that signals conformity to a prevailing institutional logic: shareholder‐value orientation. In contrast, dismissal risk is greater when the CEO consistently displays language that signals stakeholder orientation, an alternative institutional logic.Theoretical/Academic ImplicationsThe present study contributes to signaling theory by incorporating a temporal dimension into the existing literature. Our findings highlight the importance of strategic actions taken by corporate leaders, suggesting that a CEO's desire to circumvent dismissal by courting shareholders helped institutionalize the shareholder‐value logic. The findings shed light on stakeholder management research by demonstrating that a one‐time gesture is not sufficient to gain support from stakeholders who value long‐run consistency in message. Finally, the present study extends CEO dismissal research by highlighting the importance of signaling and cognitive processes in the board's decision regarding CEO dismissal.Practitioner/Policy ImplicationsThe present study provides insights to corporate executives who communicate with various stakeholders and to board members who make decisions about CEO retention and dismissal. The findings may also be useful for policy makers who design regulations about corporate communications and disclosures.

Is Managerial Myopia a Persistent Governance Problem?

Critics of U.S. corporations have long argued that companies are overly focused on short‐term results and, as a consequence, sacrifice their own long‐run value and competitiveness. These criticisms have expanded in recent years to include those from prominent politicians, investors, consultants, and academics. If such criticisms have merit, they would imply a massive governance failure in which there has been decades of underinvestment with little adjustment on the part of managers, boards, or the market for corporate control.This article evaluates the economic underpinnings of these criticisms and analyzes their implications in the context of empirical evidence produced by several decades of research on corporate investment policies, the outcomes of corporate control events, investor horizons, and the market pricing of companies with little if any earnings. In reviewing the findings of these studies, the author finds little evidence to support the view that U.S. companies sacrifice long‐run value and competitiveness by systematically underinvesting.First, although U.S. companies have indeed cut back on tangible investments such as property, plant, and equipment, these cutbacks have been more than offset by the dramatic growth in investment in intangibles, such as spending on developing knowledge capital, brand‐building, and IT infrastructure. Second, when subjected to events that have the effect of reducing managerial control over investment policies and transferring control to outside investors—such as leveraged buyouts and recapitalizations, forced CEO dismissals, and shareholder activist campaigns—companies tend to reduce, not increase, investment spending. In fact, it is difficult to find any corporate control threats that have had the goal or effect of increasing investment. Third, and at the same time, the rising concentration of large institutional investors, including indexers such as BlackRock and Vanguard, suggests that investors have become, if anything, more long‐term oriented over time. Fourth, there is no evidence that the market shuns companies that have yet to report large (or indeed any) earnings. These findings suggest that curbing overinvestment, and not discouraging myopia and underinvestment, may well still be the larger corporate governance challenge facing investors when monitoring and attempting to influence the performance of U.S. companies.

Executive Deviance as a Sociopolitical Force in Dismissals

ABSTRACT The seminal model of CEO dismissals utilizes four sociopolitical forces that operate together in determining whether a CEO will be dismissed. Missing from the sociopolitical forces of CEO dismissals is executive deviance. We propose the inclusion of executive deviance as the fifth sociopolitical force in CEO dismissals, which is not limited to the deviant actions of the executive, but also the executive’s subordinates. Within the comprehensive CEO dismissal framework, the effect of executive deviance on head coach dismissals in the National Football League (NFL) from the 2000–2001 to 2015–2016 season is examined using four levels of executive deviance: (a) deviance committed directly by the executive, (b) minor workplace deviance by employees, (c) serious workplace deviance by employees, and (d) off-duty deviance by employees. Logistic regression results indicate all four levels of executive deviance increase the likelihood of executive dismissal and have more substantial effects than organizational performance. We encourage researchers to include executive deviance within their comprehensive, ceteris paribus models of CEO dismissals, empirically test the effects of executive deviance in various industries, and revisit past models of executive dismissals to mitigate potentially erroneous statistical results from confounding variables.

The Restructuring Imperative: Deviation, Performance and CEO Dismissal in the Shareholder Value Era

This paper proposes that CEO dismissal is a form of penalty that CEOs incur for their record of deviation from historically prevailing norms of appropriate behavior during performance downturns. To verify this argument, I examine CEO dismissal and post-dismissal strategic change in large U.S. companies between 1984 and 2007, when the field in which these firms were embedded was characterized by the prominence of the norms of corporate restructuring for shareholders. My findings are three-fold. First, the effect of performance declines on CEO dismissal was intensified by the extent to which CEOs held a record of deviation from the norms of restructuring–i.e., that of increasing assets, employees, and unrelated diversification. Second, new CEOs were more inclined to engage in restructuring when they took office following the dismissal of predecessors with a record of deviation. Finally, those patterns of CEO dismissal and post-dismissal restructuring became more evident over time as the norms developed. Meanwhile, the findings did not apply prior to the shareholder value era. Consequently, this paper suggests that institutional norms act as interpretive frameworks that enable a board of directors to make sense of performance problems and evaluate managerial competence to resolve those problems. Implications for the literatures on institutional theory and upper echelon research are discussed.

Small but Not Meaningless: Shareholder Dissent and CEO Dismissals in German Firms

Research on CEO dismissals has long realized the importance of shareholders, specifically shareholder returns (exit) and activism by large shareholders (voice). More recently, however, minority sha...

Political Ideology of the Board and CEO Dismissal Following Financial Misconduct

Political Ideology of the Board and CEO Dismissal Following Financial Misconduct

The Effects of Board Faultlines on CEO Dismissal

The Effects of Board Faultlines on CEO Dismissal

Go your own way: Exploring the causes of top executive turnover

Research SummaryWhy do top executives leave their firms? Research on executive turnover has either focused on CEO dismissal or on group‐level top management team (TMT) departure rates, mostly ignoring individual‐level factors that would predict why non‐CEO executives exit. Here, we extend the shock perspective of the unfolding model of turnover used in organizational behavior research to show how relational and reputational shocks influence turnover at the executive level. Our sample includes over 4,000 executives from S&P 1500 firms over 11 years. We hypothesize and find that relational and reputational shocks increase the likelihood of top executive exit. We also consider the moderating influence of pay disparity on these relationships, which impacts how each type of shock influences executive turnover.Managerial SummaryReplacing top executives can be extremely costly for firms. Consequently, understanding the reasons behind top executive exit are important. We examine the effect of different types of shock on the likelihood a top executive will exit their firm. We find that both relational shocks (e.g., other members of the TMT leaving), as well as reputational shocks (e.g., litigation or shareholder activism against the firm), increase turnover. However, we find that higher status executives experience these shocks differently than lower status executives.

The Corporate Restructuring Imperative: Performance, Strategy, and CEO Dismissal in the Shareholder Value Era

The Corporate Restructuring Imperative: Performance, Strategy, and CEO Dismissal in the Shareholder Value Era

When the Mouse Squeaks Will the Elephant Listen? The Effect of Minority Shareholder Voice on CEO Dismissals in German Family and Non-Family Firms

When the Mouse Squeaks Will the Elephant Listen? The Effect of Minority Shareholder Voice on CEO Dismissals in German Family and Non-Family Firms

You’re Fired! Gender Disparities in CEO Dismissal

CEO dismissals attract considerable attention, presumably because of the visibility, publicity, and intrigue that often surrounds the decision to fire the CEO. With the goal of advancing scholarly understanding of CEO dismissals, we examine whether CEO gender influences the likelihood of dismissal. We theorize and find that ceteris paribus, female CEOs are significantly more likely to be dismissed than male CEOs. Perhaps even more importantly, we find a CEO gender by firm performance interaction such that male CEOs are less likely to be dismissed when firm performance is high (compared to when it is low), whereas female CEOs have a similar level of dismissal likelihood regardless of firm performance. Notably, our results are robust to multiple analytical techniques and various econometric specifications, bringing greater credence to the validity of our findings. Implications and directions for future research are also discussed.

Executive Deviance as a Sociopolitical Force in Dismissals

Fredrickson et al. (1988) provided a model for CEO dismissals which utilize four sociopolitical forces that operate together in determining whether a CEO will be dismissed. Missing from Fredrickson et al.’s (1988) sociopolitical forces is executive deviance. We propose the inclusion of executive deviance as the fifth sociopolitical force in CEO dismissals, which is not limited to the deviant actions of the executive, but also the executive’s subordinates. Within Fredrickson et al.’s CEO dismissal framework, the effect of executive deviance on head coach dismissals in the National Football League (NFL) from the 2000-2001 to 2015-2016 season is examined using four levels of executive deviance: (a) deviance committed directly by the executive, (b) minor workplace deviance by employees, (c) serious workplace deviance by employees, and (d) off-duty deviance by employees. Logistic regression results indicate all four levels of executive deviance increase the likelihood of executive dismissal and have more subst...

Hometown Ties and Favoritism in Chinese Corporations: Evidence from CEO Dismissal

Social relationships between CEOs and directors are important factors influencing the effectiveness of corporate governance. In this paper, we develop a framework that investigates how a key social...

How a CEO’s Use of Language toward Shareholders and Stakeholders Affects CEO Dismissal

Top managers routinely use language in public to signal messages to the firm’s constituencies in the environment, but little is known about how temporal variations in the manager’s use of language ...

What Kind of Family Firms Fired Family CEOs? A QCA Analysis Based on Kinship and Governance Role

While family firms are more inclined to appoint family members as CEO, this study focuses on why family firms dismiss family CEOs. Using a hand- collected data from Chinese listed family firms and the method of qualitative comparative analysis, we find three family firm styles that can lead to family CEO dismissal, namely “outside pressure style”, “family parliamentary style”, “quasi-lone- founder style”. We further explain the internal mechanisms of these styles from the perspectives of agency theory and socioemotional wealth and summarize the “family member influence matrix based on kinships and governance roles”, exploring the differences between family firms with different types of kinships and governance roles. On this basis, we propose the stratification phenomenon of socioemotional wealth, stratification phenomenon of family member influence path as well as a series of theoretical propositions for future researches, trying to extend existing researches in family business field from “family firm vs. nonfamily firm” level to “close relative vs. distant relative” and “director vs. executive” level.

Gain from your pain: Firm stock market reactions to competitor firms' early CEO dismissal

Dismissal of newly appointed CEOs has become increasingly prevalent and has attracted significant research attention. Prior studies on this topic have mainly focused on its implication for the foca...