Chief Executive Officer Turnover Research Articles

CEO turnover, ESG‐washing, and firm value

AbstractThis study investigates the effects of chief executive officer (CEO) turnover on myopic investment decisions and firm value. A variable for environment, social, and governance (ESG)‐washing is designed and employed as an alternative proxy for myopic investment. We find that firms with more frequent CEO turnover are more likely to engage in ESG‐washing as a form of myopic investment to meet short‐term performance goals. In addition, firms that engage in ESG‐washing report lower firm value than firms that are not involved in ESG‐washing because the lack of substantive investment accompanying these activities ultimately deteriorates firm reputation and value in return for short‐term improvement in ESG performance.

The pitfalls of corporate social irresponsibility: Hypocrisy of family firms in South Korea

Corporate hypocrisy poses a significant risk to businesses striving for sustainable management. Stakeholders' increasing interest in ESG (environmental, social, and governance) activities and easy access to information makes maintaining authenticity essential. Any firm caught in hypocrisy risks losing stakeholder trust and damaging its legitimacy. Family firms willing to preserve socioemotional wealth are more susceptible to hypocrisy than general firms due to the family’s significant influence on decision-making, including CEO (chief executive officer) turnover and legitimacy crises. This study examined the impact of CSIR (corporate social irresponsibility) on sustainability in two South Korean companies and assessed how internal factors (e.g., CEO turnover and succession) and external factors (e.g., market competition and environmental dynamism) influenced them. To this end, we employed a case study as the central methodology and conducted text mining, interviews, and financial analysis through content analysis. Our first finding is that CSIR negatively affects financial and non-financial performance in family firms. Second, family firms must make genuine efforts to restore their legitimacy. As per the moderation effect of CEO succession, the pivotal consideration is appointing an external CEO rather than whether the subsequent CEO is a family member. Beta chose an external CEO who was a family member, while Alpha selected a long-time company insider who was not a family member as the succeeding CEO. Alpha, which designated an internal nonfamily CEO after the CEO succession, demonstrated a financial performance resilience inferior to Beta. Third, firms must communicate promptly with stakeholders in external conditions. With internationalization and digitalization, stakeholders enjoy a greater array of choices, and the evolution of public media has heightened the prominence of CSIR. The diminishing reliance of stakeholders on a particular company, the active articulation of opinions, and enhanced knowledge magnify the impact of a company’s CSIR on the sustainability of family firms.

The Impact of CEO Turnover on Financial Performance of Industrial Firms Listed on the Amman Stock Exchange

The present study endeavors to examine the correlation between CEO turnover and the financial performance of industrial firms in Jordan. The primary objective of this research is to assess how changes in the Chief Executive Officer (CEO) position affect the financial performance of an organization. This investigation encompasses three specific aspects by analyzing the timing of CEO turnover events in relation to key financial performance (FP) indicators, namely Return on Assets (ROA) and Return on Equity (ROE). Utilizing financial data collected from 33 firms between 2017 and 2021, a panel data regression analysis was conducted to reach meaningful conclusions. The results indicate a negative relationship between CEO turnover and FP, regardless of the timing of CEO dismissal, which highlights the low tolerance for poor performance in industrial firms in Jordan. Furthermore, the study found that ROE serves as a more accurate predictor of CEO turnover compared to ROA. Based on these findings, the study formulates several conclusions and recommendations, as well as potential directions for future research.

Boardroom backscratching and stock price crash risk

AbstractWe empirically capture boardroom backscratching, or cronyism, as when a firm's Chief Executive Officer (CEO) and directors concurrently receive excessive remuneration. We argue that boardroom backscratching can inhibit a board's constructive criticism and monitoring, resulting in a greater likelihood of bad news hoarding. Using 14,104 US firm‐year observations spanning 1999–2020, we document a significant positive relationship between boardroom backscratching and stock price crash risk. In additional analyses, we show that boardroom backscratching firms produce less readable annual reports and engage in greater upward real earnings management as channels for concealing bad news. We also find that external monitoring mechanisms weaken the positive association between boardroom backscratching and stock price crash risk. Our main findings withstand several endogeneity tests including propensity score matching, entropy balancing, difference‐in‐differences analysis using firms’ commencement of boardroom backscratching and CEO turnover event analysis. Our study offers insights to securities regulators and policymakers to revisit the notion of board independence, develop relevant market oversight and revise director and executive remuneration disclosure requirements so as to mitigate adverse stock market performance associated with boardroom backscratching.

The Impact of CEO Change on Enterprise Performance

The chief executive officer (CEO) is the enterprise's leader and plays a crucial role in business growth. Thus, the impact of the CEO changeover on the company and the selection of a suitable replacement are equally crucial considerations. This research utilizes data from Shanghai and Shenzhen-listed corporations. Using China's shares from 2010 to 2019 as the primary sample and earnings per share (EPS) as the performance indicator, we examine the influence of CEO turnover and succession sources on the company's performance. This research examines the pertinent literature and concludes that there are numerous elements that influence corporate performance, such as CEO turnover, firm size, debt ratio, etc. Several control variables are selected to develop an econometric model in order to control the influence of other factors affecting independent variables and dependent variables. This paper focuses on empirical analysis, does descriptive statistical analysis and multiple regression analysis, and employs the PSM-DID model for robustness testing in order to investigate the effect of CEO change on firm performance. After accounting for the endogenous or self-selection bias of the control sample, the study indicated that CEO turnover has a detrimental effect on company performance. From the standpoint of succession types, the corporate performance of listed companies with external successors is inferior to that of publicly traded companies with internal successors. On the basis of the above empirical findings, this study makes related recommendations for the current corporate management practice in China.

CEO turnovers and capital structure persistence

AbstractFirm fixed effects in panel leverage regressions act as a noisy proxy for managerial effects that drive persistence in leverage. Firms that do not change their chief executive officer (CEO) for prolonged periods of time are more likely to keep debt ratios within a narrow bandwidth and to display persistent differences in their time‐series averages for up to 20 years. A CEO turnover is associated with considerable modifications to the financing policy of the firm. Significant capital structure changes take place immediately after a new executive takes office and leverage ratios remain relatively stable for the remaining tenure of the CEO.

Firm performance and CEO turnover: the moderating role of CEO attributes

Purpose This study aims to examine the effects of firm performance on chief executive officer (CEO) turnover and the moderating role of CEO attributes on the firm performance–CEO turnover relationship. Design/methodology/approach Probit regressions were used to examine the relationship between various CEO attributes and CEO turnover and the moderation effect of firm performance on the CEO attributes–CEO turnover relationship. The sample comprises firms from the FTSE 350 Index covering the period 1999–2018. Findings The results indicate that firm performance negatively and significantly impacts CEO turnover. Further analysis reveals that selected CEO attributes, namely, CEO internal experience, CEO network size and CEO age, moderate the relationship between firm performance and CEO turnover. Specifically, CEO internal experience and performance combine to reduce the likelihood of CEO turnover. However, CEO network size and age when combined with firm performance increase the likelihood of CEO turnover. Practical implications The results imply that boards should pay more attention to CEO attributes in their decisions to hire and fire executive managers as these factors may affect a wide variety of firm outcomes. Originality/value This paper makes key contributions to the CEO turnover and corporate governance literature by providing evidence of key factors other than performance that can affect the CEO dismissal decision. Specifically, this study shows that CEO attributes such as CEO internal experience, CEO networks and CEO age far outweigh the importance of performance as a factor influencing CEO turnover decisions.

Remuneration committees, CEO compensation, skills and retention

PurposeThe purpose of this study is threefold: to examine the impact of a remuneration committee (RC) on the level of chief executive officer (CEO) remuneration; whether firms with a RC, pay a premium to CEOs with different skill sets (general or specific); and whether a pay premium mitigates the potential for CEO turnover.Design/methodology/approachThis study uses a sample of 5,305 firm-year observations on a data set drawn from companies listed on the Australian Securities Exchange for the period 2007 to 2014. The authors use ordinary least squares as well as logit regression techniques to test the formulated hypotheses. Difference in difference and propensity score matching techniques were undertaken to address the endogeneity concerns.FindingsThe findings show that firms with a RC pay a higher total remuneration to CEOs compared to firms without a RC. Furthermore, firms with a RC, value and reward CEOs with general skills by paying a premium not offered to CEOs with industry-specific skills. Paying a premium, in turn, mitigates CEO turnover by strengthening the CEO’s commitment to the organisation.Originality/valueThe study helps us to understand the critical role played by the RC in the remuneration of CEOs. The findings show that RCs act as an effective governance mechanism to deal with issues of executive remuneration and to retain skilled CEOs. Additionally, CEOs who acquire and develop general managerial skills will be able to extract higher pay from improved bargaining power. The findings will be of relevance to shareholders, regulators and company management who have an interest in executive pay and performance.

Investigation of the multi-layers of imprinting on corporate working capital management

PurposeThe paper aims to investigate the imprinting effect on working capital (WC) management as higher-level managers' transition to chief executive officer (CEO) positions. This paper proposes that WC management defined as a shorter cash conversion cycle (CCC) can be carried forward to the new firm when the managers are appointed as a CEO.Design/methodology/approachThe authors employ a multivariate regression approach. The data in this study come from two sources: Execucomp which provides data for corporate managers of the largest 2,000 USA firms including S&P 1,500 US and Compustat which provides financial information of firms.FindingsThe authors find a positive imprinting effect of “new” CEOs on WC outcomes – proxied by the CCC. CCC shortens by approximately 16 days when CEOs are efficient managers at previous institutions, predominantly derived from improvements in inventory and payables. The effect is sensitive to individuals' age, familiarity with the industry and high-pressure circumstances.Practical implicationsThe paper includes important implications of WC management for firms to consider, especially during economic crises when liquidity management is a priority.Originality/valueThis paper extends the literature on the imprinting effect on managerial decision-making. The paper offers evidence of cooperative yet dynamic efforts in managing WC during CEO turnover events, which are unique findings.

Do new CEOs really care about innovation?

AbstractThis study asks whether new chief executive officers (CEOs) care about innovation postturnover. Using a large sample of Chinese listed firms between 2008 and 2019, our identification strategy relies on the exogenous variation in CEO turnovers. Our difference‐in‐difference estimates indicate that new CEOs improve R&D efficiency and generate more and higher quality patents. We further show that this positive effect is more pronounced when CEOs have longer career horizons and overseas experience. Overall, our findings indicate that CEO turnover represents an effective mechanism for fostering innovation and new CEOs indeed care about innovation. Our results could benefit several groups of stakeholders with respect to CEO selection process.

When does CEO succession lead to strategic change? The mediating role of top management team replacement

While mandates for strategic change may accompany the selection of new Chief Executive Officer (CEOs), the broader set of leadership changes necessary for strategic change remains unclear. Motivated by upper echelons and resource dependence theories, direct relationships between three structural events associated with CEO succession and strategic change are examined, as well as whether these relationships are mediated by replacing top management team (TMT) members. Significant mediated relationships are found in which TMT replacement mediates the relationships of pre-succession firm performance and hiring an outsider as CEO with post-succession strategic change. Involuntary CEO turnover is found to be directly related to post-succession strategic change, with no significant mediating effects from TMT replacement. These findings suggest that boards seeking strategic change following a CEO succession should also consider TMT member succession, including whether CEO candidates can leverage their networks to attract new TMT members with human and social capital that supports strategic change objectives.

Specialist CEOs versus Generalist CEOs: CEO Type and Firm Performance Following Initial Public Offerings on the Chinese Market

This study focuses on the effect of Chief Executive Officer (CEO)-level characteristics on a firm’s survival following initial public offerings (IPOs). Specifically, it looks at the impact of generalist CEOs between July 2009 and July 2021 on the likelihood of firm failure and IPO survival. This study uses principal component analysis to create a generalist skills index based on CEO work experience, including the number of roles that the CEO has held, the number of firms in which the CEO has worked, the number of industries in which the CEO has worked, whether the CEO has taken a CEO position in other firms, whether the CEO has worked in a conglomerate, and whether the CEO holds a professional title. The results of the Cox proportional hazards model reveal that companies with a generalist CEO have a higher probability of failing than companies with a specialist CEO, which suggests that generalist CEOs pursue higher salaries and higher reputations through switching between different industries and firms. Performance-related compensation and CEO turnover in companies with generalist CEOs explain the higher probability of firm failure. The main results still hold after controlling for CEO power, board and firm characteristics, and testing using the logit model. This research on the connection between generalist CEOs and a firm’s failure risk also offers insight into a company's CEO hiring choice and job market activities.

CEO turnover and audit pricing: the role of media tone

PurposePrior research documents that chief executive officer (CEO) characteristics and succession planning affect audit fees. However, whether new CEOs’ media coverage influences audit fees remains unexplored. This study aims to fill this gap by examining whether auditors price media coverage of the new CEO.Design/methodology/approachThe sample comprises 89 US listed firms with CEO turnover over the period 2012–2016, resulting in a total of 445 firm-year observations. Panel data models are used in the analyses.FindingsThe results show that audit fees are higher for firms that hire a new CEO covered with more negative media tone. This study further documents that CEO media tone is determined independently of audit pricing, but that the extent of audit fees is positively related to a new CEO covered with more negative media tone, consistent with a sequential media-tone-then-audit-pricing process.Research limitations/implicationsThe results of this study should motivate future auditing research to consider the media as an important source of external information. The findings are also relevant to stakeholders who are interested in understanding the relationship between auditors and their clients’ CEOs.Originality/valueThis study contributes to the audit fee literature by providing new evidence that auditors view their clients’ CEO with a negative media tone as requiring greater audit effort and leading to higher risks, due to greater public and regulators’ attention conveyed in news coverage. Moreover, the finding of this study that audit fees are higher for firms that hire a new CEO covered with more negative media tone is novel, and extends Joe’s (2003) empirical finding that negative press coverage increases auditors’ perception of risk.

Does chief executive officer turnover affect green innovation quality and quantity? Evidence from China's manufacturing enterprises.

In the context of sustainability and carbon neutrality, green innovation has become a focus of China's manufacturing enterprises. However, how a new chief executive officer (CEO) reacts to this situation is less discussed. This paper relies on agency conflicts, employing upper echelons theory and institutional literature to examine the effects of CEO turnover on green innovation. By using a sample of 1,915 listed manufacturing firms in China, we find that CEO turnover leads to greater green innovation quantity but not lower innovation quality. This result does not verify the greenwashing perspective and shows that CEO turnover is a promoter of green innovation. In addition, we observed that formal and informal factors (represented by environmental regulation and media coverage) have different moderating impacts on the quality and quantity of green innovation. This study provides new insight into green innovation governance mechanisms.

Enforceability of Noncompetition Agreements and Forced Turnovers of Chief Executive Officers

We examine whether corporate boards factor the potential cost of competitive harm caused by a departing chief executive officer (CEO) into their forced-turnover decisions. Using staggered changes in the state-level enforceability of a covenant not to compete (CNC) for identification, we find that enhanced enforceability of CNCs increases both the likelihood of forced CEO turnover and the sensitivity of forced CEO turnover to firm performance. We present additional cross-sectional evidence that shows that such effects are more pronounced when firms face more severe product market threats or operate in industries with greater potential threats of predatory hiring. Investors react to turnover announcements more positively when enforceability increases, which indicates that enhanced enforceability of CNCs increases efficiency in decisions to replace CEOs.

The Forced Turnover Effect on an Overconfident CEO: Evidence From Taiwan-Listed Firms

This research focuses on investigating the reasons why an overconfident chief executive officer (CEO) is forced to leave by examining CEO turnover observations from 463 Taiwan-listed companies over the period 2008 to 2016 and using the Cox semi-parametric proportional hazard model to test the reasons for CEOs being laid off. The empirical result shows that overconfidence increases a CEO’s forced turnover risk, but this risk is not significant for an overconfident CEO in a company with a high proportion of controlling shareholders on the board. In addition, an overconfident CEO’s forced turnover risk decreases when he/she has strong business and management ability. This paper contributes to the literature by demonstrating the relationship between a CEO’s forced turnover risk and control-affiliated directors as well as the CEO’s ability.

Dynamics of managerial power and CEO compensation in the course of corporate distress: Evidence from 1992 to 2019

We study the dynamics of two governance constructs, managerial influence over the board of directors and chief executive officer (CEO) compensation, in firms undergoing distress during 1992–2019. Data show a clear trend that governance improves over time, which confounds the inference about the effects of distress on governance. Controlling for the secular changes with a bias-corrected matching estimator, we find that distressed firms reduce managerial board appointments and CEO pay, intensify managerial incentive alignment, and increase CEO turnover. The bulk of CEO compensation changes in distressed firms derives from the performance-related part of compensation, consistent with the “shareholder value” view of CEO compensation.

Unionization and CEO turnover

AbstractThis article investigates whether unions have power to influence turnover of poorly performing chief executive officers (CEOs). Employing the transparency coalition framework, we develop hypotheses regarding CEO tenure given unionization, performance‐turnover sensitivity, and firm performance following CEO turnover. We use Cox regression and a data set of US firms from 1993 to 2013 to show that CEO turnover is accelerated at firms that unionize. Discontinuity analysis suggests that the relationship is causal. Overall, the results show the significance of unions in the key corporate governance event of CEO turnover and suggest that, though they may proceed independently and for their own traditional goals of good pay and job conditions for their members, unions can be allies of investors and boards or directors when it comes to removing underperforming CEOs.

CEO Turnover, Leadership Identity, and TMT Creativity in a Cross-Cultural Context.

Whether chief executive officer (CEO) turnover can improve top management team (TMT) creativity is an important issue that remains to be solved. Based on the theoretical background of CEO turnover, team creativity, and cross-cultural context, this study proposes a theoretical model to answer the question and introduces leadership identity as a moderator simultaneously. The multiple regression analysis of data obtained from 903 executives in 104 top management teams revealed CEO voluntary resignation/internal succession pattern, CEO voluntary resignation/external succession pattern, and CEO forced resignation/internal succession pattern separately had a significant positive impact on TMT creativity in a cross-cultural context; leadership identity partially moderated the relationship between CEO turnover and TMT creativity. According to these findings, only three patterns of CEO turnover could promote TMT creativity, and leadership identity enhanced the positive effects of CEO voluntary resignation/internal succession pattern, CEO voluntary resignation/external succession pattern, and CEO forced resignation/internal succession pattern on TMT creativity in a cross-cultural context. These made up for the lack of theoretical research on the relationships among CEO turnover, TMT creativity and leadership identity, which could provide the scientific guidance to conduct the CEO turnover practice and improve TMT creativity in a cross-cultural context.

Corporate governance, CEO turnover and say on pay votes

Purpose The purpose of this study is to investigate how compensation committee structure or characteristic impacts say on pay (SOP) voting dissent and the impact of SOP dissent on chief executive officer (CEO) turnover. Design/methodology/approach The authors use corporate governance and SOP data to test the relationships amongst variables. Additional analysis is performed using one-to-one propensity-score matched samples. Findings The authors find that firm-years with at least a female member present on the compensation committee are associated with lower SOP dissent. The authors find mixed results of the impact of SOP dissent on CEO turnover. Practical implications This paper suggests that diversity on the compensation committee, particularly the presence of at least a female member on the committee, serves as an important determinant of SOP voting outcome in the USA. The paper provides policymakers and practitioners with insights into factors influencing SOP voting outcomes and implications of SOP dissent for firms. Originality/value The findings of this paper contribute to the corporate governance literature by enhancing the understanding of the role of the compensation committee as it relates to SOP dissent and effect of SOP dissent on CEO turnover.