Executive Turnover Research Articles

Executive Compensation: The Role of Human Capital and Geographic Preferences

Human capital is crucial for sustainable competitive advantage, and certain workforce groups have a greater impact than others. The top management team, responsible for directing firm strategy and structure, is one such group, and executive turnover can be detrimental for a firm. While existing literature often suggests that executives change jobs primarily for higher pay, this is not always true. Drawing on human capital research and the geographic preference theory, we examine how an executive’s human capital and geographic preferences affect changes in compensation during job transitions. Using a sample of 351 executives who moved among S&P 500 companies from 2000 to 2015 (378 inter-organizational moves), we find that education (a proxy for human capital) and area desirability (a proxy for geographic desirability) correlate with changes in executive compensation. Additionally, a higher density of geographically proximal executive pay packages increases an executive’s compensation premium when changing jobs.

Tourism-industrial atmosphere and executive change: How can they impact firms? - A mixed context analysis study

The current context-turnover paradigm offers a theoretical understanding related to the influence of executive turnover, emphasizing the significance of the internal and physical factors. However, there is a lack of well-theorized and empirical evidence regarding the role of industrial atmosphere. We argue that tourism firms can time executive turnover to optimize its influence by referring to event-atmosphere context. We propose a context analytic approach to comprehensively investigate the aforementioned impacts, shaping an industrial context-turnover theory. Tourism firm performance after executive turnover is significantly moderated by the competitive and seasonal context of the tourism industry. Involuntary executive turnovers are particularly affected, compared to voluntary ones. Tourism-industrial atmosphere contributes significantly to foresee the consequence, and event-driven context forecasting accurately estimates the outcome.

Frequent executive turnover and accounting information quality

Frequent executive turnover and accounting information quality

The effect of political connections on the distribution of firm performance

Political connections have the potential to redistribute rents toward connected firms, and away from non-connected ones. In this paper, we show that this is indeed the case for Chinese listed firms during 2008–2015. Connected firms (as proxied by college ties between senior management and local leaders) have higher Return on Assets (ROA) and more government subsidies, while non-connected firms experience a significant decline in both ROA and subsidy when executive turnover or political rotation leads to the creation of connected firms in the city. The differential effects on non-connected firms within the same industry versus those in different industries suggest that non-connected firms outside the industry are more adversely affected due to leaders' attempts to mask favoritism with broad industrial policy.

Modeling Uncertainty: Does Executive Turnover Create Unpredictability in Organizational Performance?

Modeling Uncertainty: Does Executive Turnover Create Unpredictability in Organizational Performance?

Turnover by Non-CEO Executives in Top Management Teams and Escalation of Commitment

This article investigates the relationship between the decision-making bias known as escalation of commitment and the turnover of non-CEO executives in top management teams. The phenomenon of escalation of commitment is observed when decision makers persist with business investments that have a low likelihood of success. Theoretical explanations for the association between executive turnover and escalation include self-justification and reputation protection. Top managers may conceal prior errors, escalate commitment to earlier decisions, and exit the organization before the outcome of decisions is observed. Successor managers do not have a commitment to earlier decisions and have the capability to stop investments that are discovered to be failing. Empirical analysis utilizing a sample of over 1600 U.S. firms confirms that departures by non-CEO executives from top management teams are associated with an increased likelihood of new reporting of discontinued operations and extraordinary items by firms and a reduction in the firms’ performances relative to their industry. These effects reflect de-escalation activities and are amplified in the years concurrent with and following a joint departure of multiple management team members. Prior empirical studies on escalation and de-escalation behavior focused on CEO turnover. The contribution of this article is its documenting of the key role of non-CEO managers and team turnover in the context of escalation.

Executive turnover, internal control and accounting information comparability

AbstractThis paper aims to explore the causality between executive turnover and accounting information comparability (AIC) within the context of Chinese‐listed companies. The evidence with robustness tests strongly supports that the executive turnover hurts accounting comparability of corporations. These effects are more salient in the subsamples of non‐state‐owned and non‐high‐tech firms relative to state‐owned and high‐tech ones. The negative effects of executive turnover on AIC are restrained given less internal control weakness. The findings highlight the role of internal controls in ensuring AIC, and offer insights to inform the formulation of related management policies following a new executive appointment.

Career Mobility and Performance Evaluation of China's SOE Managerial Elites

Abstract This paper examines the career mobility and performance evaluation of the leaders of China's state-owned enterprises (SOEs) at the central, provincial and prefectural levels. Using data on executive turnover within publicly listed SOEs, we find that central and local SOE leaders have a similar career flow pattern. Specifically, vertical mobility within the same business group is common and more than 60 per cent of SOE leaders leave their office within three years. Only a minority of SOE leaders achieve political promotion. We also find that performance evaluation criteria are different across central and local SOEs. The leaders who provide better economic outcomes for central SOEs obtain a higher evaluation score, while close political connections boost the promotion prospects of local SOE leaders. Overall, our findings provide granular evidence on the personnel management of China's SOEs from a comparative perspective.

Can digital transformation reduce R&D investment disruption during the top executive transition period?

AbstractThis study examines whether digital transformation can reduce research and development (R&D) investment disruption during the top executive transition period. Using panel data of A‐listed firms in China from 2007 to 2021, we find that top executive turnover (TET) generally leads to a remarkable reduction in R&D investment, while digital transformation can significantly mitigate the negative impact of TET on R&D investment. Moreover, the smooth management transition effect of digital transformation is more pronounced for firms with outside succession and high organizational complexity. We further divide R&D investments into exploratory and exploitative R&D investments. Compared to exploitative R&D investment, exploratory R&D investment is more adversely affected by TET, and digital transformation has a positive moderating effect on the relationship between them. Our findings suggest that digital transformation enables companies to maintain continuous R&D investment during the top executive transition by improving communication efficiency and enhancing organizational learning.

Does executive turnover affect government transparency? Leadership changes and environmental information disclosure in Chinese cities

Research has underscored the role of executive turnover in organizational processes and outcomes. However, little research has linked turnover events to externally oriented outcomes such as government transparency, and most studies are set in Western countries. Focusing on an authoritarian context, we theorize how new executives are likely to focus on issues that align with expectations from powerful stakeholders and turnover events provide windows of opportunities for organizational changes. Using panel data from 113 Chinese cities, this article explores the impact of executive turnover on government transparency in environmental information. Results show that mayoral and party secretaries’ turnover positively affects government environmental transparency. This effect is contingent on the career stages of the successors and local pollution levels. Our results show divergence in moderating effects across mayoral turnover and party secretary turnover. Implications for research on executive turnover and government transparency in an authoritarian one-party political system are discussed.

Measuring Latin American political instability since independence

This article presents definitions and novel data on four different ways to operationalize political instability: coups d’etat, constitutional endurance, chief executive turnover, and completed executive terms. We cover nineteen Latin American countries since independence until 2005, thus compiling a dataset of country-year observations. Additionally, we code the years in which -independently of regime type- some modicum of political opposition was allowed. The data reveals high levels of intra and inter country heterogeneity, but we are able to offer a periodization of general patterns of regional instability over the past two centuries. First, after independence Latin Americans faced a long period of institution building that was highly unstable. Second, the last decades of the nineteenth century witnessed remarkable improvements in terms of political stability. Third, military coups challenged the incipient history of stability around 1930. Fourth, after 1980 the trend is towards stability. Finally, political pluralism existed in two thirds of the observations in the dataset. The analysis of the evolution of opposition and completed terms across countries is indicative, however, of intra regional heterogeneity.

Non‐CEO executives' intraorganizational competition incentives and corporate labour investment efficiency

AbstractThis study examines the impact of non‐Chief Executive Officer (non‐CEO) executives' intraorganizational promotion‐based incentives, also known as tournament incentives, on corporate labour investment efficiency. We find that tournament incentives lead to inefficient labour investment, measured as the absolute deviation from optimal net hiring warranted by firm fundamentals. This positive relationship is weakened when non‐CEO executives are less eager to compete in the tournament. Mediating analysis demonstrates that reduced team cohesion, captured by non‐CEO executive turnover, mediates the relationship between tournament incentives and labour investment inefficiency. Our evidence is consistent with the dysfunctional view of tournament incentives and highlights the importance of non‐CEO executives' incentives in corporate labour investment.

Optimize your leadership pipeline: leveraging HR analytics for C-suite executive development

PurposeThis paper employs human resources (HR) analytics to investigate the pathways through which high-potential managers ascend to C-suite positions, and how different developmental paths influence turnover among executives.Design/methodology/approachBy combining job analysis and competency assessment with sequence analysis, the authors utilize HR analytics to analyze the work experiences of 53 general managers spanning 57 years (n = 2,742), encompassing various roles, job requirements, and 20 executive competencies attached to over 1,000 positions.FindingsThis study's findings reveal three distinct developmental paths that lead to the C-suite, characterized by differences in the content, context, timing, and complexity of work experience. Furthermore, the authors identify that a more complex developmental path tends to reinforce executives' competency in self-awareness while inhibiting their development of technical competency, ultimately resulting in reduced executive turnover.Originality/valueBy employing HR analytics to analyze empirical data embedded in job and organizational contexts, this study sheds light on the critical role of timing and complexity of work experiences in executive development. It also offers practical implications for firms seeking to optimize their leadership pipeline and reduce executive turnover by leveraging HR analytics effectively.

Compensation Design Dispersion and Executive Turnover

Compensation Design Dispersion and Executive Turnover

No reason to leave: The effects of CEO diversity-valuing behavior on psychological safety and turnover for female executives.

An extensive body of research has shed light on the structural challenges and stereotypic barriers that lead female leaders to exit their organizations. However, we know little about the factors that mitigate these exits. In this study, we advance the literature by examining how the chief executive officers (CEO's) diversity-valuing behavior relates to female executives' likelihood of turnover. We integrate insights from the literature on gender inclusive leadership, turnover, and psychological safety to propose psychological safety as a key underlying mechanism for this outcome. We test and find support for our theory and hypotheses using a unique data set that combines primary survey data and archival data on turnover for a sample of 365 male and female executives from large U.S. public firms. Our findings show that CEO diversity-valuing behavior is associated with psychological safety for female executives and that psychological safety, in turn, mediates the effect on female executive turnover. We do not find these effects in men. Our study contributes to the literature on gender diversity and female leadership by shifting the conversation from discussing barriers constraining women's longevity to how CEOs enable female executives' retention through diversity-valuing behaviors. (PsycInfo Database Record (c) 2022 APA, all rights reserved).

Executive Compensation Limits and Executive Turnover

We explore the consequences of limiting executive pay on voluntary executive turnover by exploiting a Chinese government policy restricting executive pay at a subset of firms. Affected firms experience an increase in voluntary executive turnover, with executives increasingly moving to firms not bound by the pay policy. Executives that leave are of higher quality as suggested by their stronger stock and accounting performance in the year prior to the turnover. Affected firms suffer firm value losses, especially when talented executives leave. Our findings demonstrate the importance of compensation contracts in retaining executives and suggest a need for regulatory caution, since mandated constraints aimed at trying to “fix” executive pay can hurt firm value and ultimately, hurt shareholders. This paper was accepted by Suraj Srinivasan, accounting. Funding: S. Silveri acknowledges research support in the form of a summer research grant from the Fogelman College of Business and Economics at the University of Memphis. This research support does not imply endorsement of the research results by either Fogelman College or the University of Memphis. K. Wang is grateful for the financial support provided by the Tsinghua University Initiative Scientific Research Program and the research project of the Institute for State-Owned Enterprises, Tsinghua University. L. Zhao is grateful for the financial support provided by the Asia Research Center in Nankai University [Project AS2206]. Supplemental Material: The data files and online appendix are available at https://doi.org/10.1287/mnsc.2023.4812 .

Private Information Acquisition via Freedom of Information Act Requests Made to the Securities and Exchange Commission

ABSTRACT There is limited evidence about when, why, and which individuals incur costs to acquire nonpublic information about a firm, largely due to the difficulty of observing private information acquisition. To overcome this difficulty, we obtain data on Freedom of Information Act (FOIA) requests submitted to the Securities and Exchange Commission (SEC). We predict and find that perceived information asymmetry between managers and outsiders resulting from both proprietary and agency costs triggers FOIA search. We categorize organizations making FOIA requests using their business descriptions and find that many, including law and intellectual property firms, are not expressly interested in obtaining information for near-term equity trading. Instead, their search activity relates to determinants beyond financial characteristics, including patent litigation and executive turnover. Taken together, we provide evidence on private information search by a relatively unexamined set of organizations and shed new light on the function of the SEC’s Office of FOIA Services. JEL Classifications: D82; D83; M41.

CFO accounting education on the choice of earnings management

AbstractThis paper investigates whether CFO's educational background could influence his/her firm's level of earnings management because CFO plays a direct role in overseeing financial reporting. Based on agency theory and upper echelons theory, we discuss whether a CFO with/without an accounting degree could incentivize him/her to choose one over another among the three types of earnings management. Using a US sample between 1999 and 2016, we empirically find that CFOs with an accounting degree are associated with a higher degree of accrual earnings management and a higher degree of real earnings management through overproduction while CFOs without any accounting degree are associated with a higher degree of classification shifting. Our results hold robust when we implement a difference‐in‐difference test on the executive turnover from a CFO without any accounting degree to a CFO with an accounting degree. Finally, we find that CFOs with CPA certification behave more ethically in all three types of earnings management. Our study enriches the management demographic factor influence literature, unveils the role of CFO in choices of earnings management, supports ethics requirements in business education, and provides implications to executive hiring as well to audit practices.

Boards’ Reactions to Problems in Accounting for Income Taxes

ABSTRACTAccounting for income tax (AFIT) problems are among the most common and persistent of accounting problems. We examine boards’ reactions to AFIT accounting problems compared to reactions to problems originating from other areas of accounting. Specifically, we investigate executive turnover decisions surrounding announcements of control weaknesses and restatements in AFIT compared to turnover decisions around announcements of control weaknesses and restatements in other accounts. We find that CFO and CEO turnover is not statistically different around AFIT control weaknesses compared to other control weaknesses. We also find that CFO and CEO turnover is higher around AFIT restatements compared to other restatements. We find no similar pattern with auditor turnover or around other types of control weaknesses or restatements. Overall, our study suggests that boards hold top executives accountable for problems occurring in AFIT differently than problems occurring in other areas of accounting.

Compensation regulation in banking: Executive director behavior and bank performance after the EU bonus cap

The regulation that caps executives’ variable compensation, as part of the Capital Requirements Directive IV of 2013, likely affected executive turnover, compensation design, and risk-taking in EU banking. The current study identifies significantly higher average turnover rates but also finds that they are driven by CEOs at poorly performing banks. Banks indemnified their executives by off-setting the bonus cap with higher fixed compensation. Although our evidence is only suggestive, we do not find any reduction in risk-taking at the bank level, one purported aim of the regulation.