Disagreement-induced CEO turnover

Sheng Huang (First Author), Johan Maharjan (Participant Author), Anjan V. Thakor (Participant Author)

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Abstract

We propose and test a new explanation for forced CEO turnover, and examine its implications for the impact of firm performance on CEO turnover. Investors may disagree with management on optimal decisions due to heterogeneous prior beliefs. Theory suggests that such disagreement may be persistent and costly to firms; we document that this induces them to sometimes replace CEOs who investors disagree with, controlling for firm performance. A lower level of CEO-investor disagreement serves to partially “protect” CEOs from being fired, thus reducing turnover-performance sensitivity, which we also document. We also show that firms are more likely to hire an external CEO as a successor if disagreement with the departing CEO is higher. Disagreement declines following forced CEO turnover. Using various empirical strategies, we rule out other confounding interpretations of our findings. We conclude that disagreement, independently of firm performance, affects forced CEO turnover.
Original languageEnglish
JournalJournal of Financial Intermediation
Issue number43
DOIs
Publication statusPublished - 2020

Corresponding author email

thakor@wustl.edu

Keywords

  • CEO turnover
  • Corporate governance
  • Heterogeneous beliefs
  • Investor-management disagreement

Indexed by

  • ABDC-A*
  • Scopus
  • SSCI

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