TY  - JOUR
AU  - Jenter,Dirk
AU  - Kanaan,Fadi
TI  - CEO Turnover and Relative Performance Evaluation
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 12068
PY  - 2006
Y2  - March 2006
UR  - http://www.nber.org/papers/w12068
L1  - http://www.nber.org/papers/w12068.pdf
N1  - Author contact info:
Dirk Jenter
Stanford University
Graduate School of Business
655 Knight Way
Stanford, CA 94305-5015
Tel: 650/498-4411
E-Mail: djenter@stanford.edu

Fadi Kanaan
E-Mail: fadi@mit.edu
AB  - This paper examines whether CEOs are fired after bad firm performance caused by factors beyond their control. Standard economic theory predicts that corporate boards filter out exogenous industry and market shocks to firm performance when deciding on CEO retention. Using a new hand-collected sample of 1,590 CEO turnovers from 1993 to 2001, we document that CEOs are significantly more likely to be dismissed from their jobs after bad industry and bad market performance. A decline in the industry component of firm performance from its 75th to its 25th percentile increases the probability of a forced CEO turnover by approximately 50 percent. This finding is robust to controls for firm-specific performance. The result is at odds with the prior empirical literature which showed that corporate boards filter exogenous shocks from CEO dismissal decisions in samples from the 1970s and 1980s. Our findings suggest that the standard CEO turnover model is too simple to capture the empirical relation between performance and forced CEO turnovers, and we evaluate several extensions to the standard model.
ER  -