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How Does Forced-CEO-Turnover Experience Affect Directors?

Published online by Cambridge University Press:  22 July 2020

Jesse Ellis ,
Lixiong Guo  and
Shawn Mobbs Open the ORCID record for Shawn Mobbs [Opens in a new window]
Jesse Ellis
Affiliation:
North Carolina State University Poole College of [email protected]
Lixiong Guo
Affiliation:
University of Alabama Culverhouse College of [email protected]
Shawn Mobbs*
Affiliation:
University of Alabama Culverhouse College of [email protected]
*
[email protected] (corresponding author)
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Abstract

We study changes in independent director behavior and labor-market outcomes after the experience of a forced Chief Executive Officer (CEO) turnover. We find that independent directors are more willing to fire CEOs of underperforming firms, hire outside CEOs after a firing, and encourage better board-meeting attendance by fellow directors. We also find that the shareholders of poorly performing firms react positively when experienced directors join the board. It does come with a small cost for directors, in terms of additional directorships, although the cost is not as great as that for directors who do not fire the CEO of a poorly performing firm.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 56 , Issue 4 , June 2021 , pp. 1163 - 1191
Copyright
© THE AUTHOR(S), 2020. PUBLISHED BY CAMBRIDGE UNIVERSITY PRESS ON BEHALF OF THE MICHAEL G. FOSTER SCHOOL OF BUSINESS, UNIVERSITY OF WASHINGTON

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Footnotes

We thank an anonymous referee, Renee Adams, Anup Agrawal, Martin Boyer (discussant), Rüdiger Fahlenbrach (discussant), Michael Faulkender (discussant), Todd Gormley, Jarrad Harford (the editor), Chang-Mo Kang, Jungmin Kim (discussant), Lubomir Litov, Ronald Masulis, Marco Navone (discussant), Buhui Qiu (discussant), Joshua Pierce, Xian Sun (discussant), David Yermack, Adam Yore, and Wanli Zhao and seminar participants at the Northern Finance Association (NFA) Meeting, Financial Intermediation Research Society (FIRS) Conference, European Finance Association (EFA) Meeting, China International Conference in Finance (CICF), Financial Research Network (FIRN) Meeting, Financial Management Association (FMA) Asia/Pacific Conference, University of Georgia, University of Mississippi, University of New South Wales, University of Sydney, and University of Adelaide. Mobbs gratefully acknowledges financial support from the C. T. Fitzpatrick Chair of Value Investing.

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