Hostname: page-component-cd9895bd7-gxg78 Total loading time: 0 Render date: 2024-12-26T19:30:46.933Z Has data issue: false hasContentIssue false
  • English
  • Français

CEO Turnover–Performance Sensitivity in Private Firms

Published online by Cambridge University Press:  20 March 2017

Huasheng Gao ,
Jarrad Harford  and
Kai Li
Rights & Permissions [Opens in a new window]

Abstract

Core share and HTML view are not available for this content. However, as you have access to this content, a full PDF is available via the ‘Save PDF’ action button.

We compare chief executive officer (CEO) turnover in public and large private firms. Public firms have higher turnover rates and exhibit greater turnover–performance sensitivity (TPS) than private firms. When we control for pre-turnover performance, performance improvements are greater for private firms than for public firms. We investigate whether these differences are due to differences in quality of accounting information, the CEO candidate pool, CEO power, board structure, ownership structure, investor horizon, or certain unobservable differences between public and private firms. One factor contributing to public firms’ higher turnover rates and greater TPS appears to be investor myopia.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 52 , Issue 2 , April 2017 , pp. 583 - 611
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2017 

Footnotes

1

We are grateful for helpful comments from an anonymous referee, Matt Billett, Stephen Brown (the editor), Jess Cornaggia, Andrew Ellul, Vivian Fang, Murray Frank, Ruoran Gao, Inmoo Lee, Katharina Lewellen, Rik Sen, Xuan Tian, Margarita Tsoutsoura, Andy Winton, Ting Xu, and Shan Zhao; seminar participants at the Chinese University of Hong Kong, Copenhagen Business School, Erasmus University, Indiana University, Nanyang Technological University, Shanghai Advanced Institute of Finance, the University of Amsterdam, the University of Hawaii, the University of Hong Kong, the University of Minnesota, and Vienna University of Economics and Business; and conference participants at the 2013 Annual Academic Conference on Corporate Governance (Philadelphia), the 2013 London Business School Summer Corporate Finance Symposium (London), the 2013 China International Conference in Finance (Shanghai), the 2013 Northern Finance Association Meetings (Quebec City), and the 2014 Inaugural Edinburgh Corporate Finance Conference (Edinburgh). We also thank Yong Bao Kwang and Chu Chen for excellent research assistance. We acknowledge financial support from the Social Sciences and Humanities Research Council of Canada. All errors are ours.

References

Ai, C., and Norton, E. C.. “Interaction Terms in Logit and Probit Models.” Economics Letters, 80 (2003), 123–129.Google Scholar
Angrist, J.“Estimation of Limited Dependent Variable Models with Dummy Endogenous Regressors: Simple Strategies for Empirical Practice.” Journal of Business and Economic Statistics, 19 (2001), 2–16.CrossRefGoogle Scholar
Angrist, J., and Krueger, A.. “Instrumental Variables and the Search for Identification: From Supply and Demand to Natural Experiments.” Journal of Economic Perspectives, 15 (2001), 69–85.CrossRefGoogle Scholar
Asker, J.; Farre-Mensa, J.; and Ljungqvist, A.. “Corporate Investment and Stock Market Listing: A Puzzle?” Review of Financial Studies, 28 (2015), 342–390.CrossRefGoogle Scholar
Barber, B. M., and Lyon, J. D.. “Detecting Abnormal Operating Performance: The Empirical Power and Specification of Test Statistics.” Journal of Financial Economics, 41 (1996), 359–399.Google Scholar
Bhide, A.“The Hidden Cost of Stock Market Liquidity.” Journal of Financial Economics, 34 (1993), 34–51.Google Scholar
Black, F., and Scholes, M.. “The Pricing of Options and Corporate Liabilities.” Journal of Political Economy, 81 (1973), 637–654.Google Scholar
Boone, A. L., and Ivanov, V. I.. “Bankruptcy Spillover Effects on Strategic Alliance Partners.” Journal of Financial Economics, 103 (2012), 551–569.CrossRefGoogle Scholar
Borokhovich, K.; Parrino, R.; and Trapani, T.. “Outside Directors and CEO Selection.” Journal of Financial and Quantitative Analysis, 31 (1996), 337–355.CrossRefGoogle Scholar
Brochet, F.; Loumioti, M.; and Serafeim, G.. “Speaking of the Short-Term: Disclosure Horizon and Corporate Myopia.” Review of Accounting Studies, 20 (2015), 1122–1163.Google Scholar
Brown, J.; Ivkovic, Z.; Smith, P.; and Weisbenner, S.. “Neighbors Matter: Causal Community Effects and Stock Market Participation.” Journal of Finance, 63 (2008), 1509–1531.Google Scholar
Bushee, B. J.“The Influence of Institutional Investors on Myopic R&D Investment Behavior.” Accounting Review, 73 (1998), 305–333.Google Scholar
Bushee, B. J.“Do Institutional Investors Prefer Near-Term Earnings over Long-Run Value?” Contemporary Accounting Research, 18 (2001), 207–246.Google Scholar
Campello, M.; Graham, J. R.; and Harvey, C. R.. “The Real Effects of Financial Constraints: Evidence from a Financial Crisis.” Journal of Financial Economics, 97 (2010), 470–487.CrossRefGoogle Scholar
Chow, G. C.“Tests of Equality Between Sets of Coefficients in Two Linear Regressions.” Econometrica, 28 (1960), 591–605.CrossRefGoogle Scholar
Coles, J.; Lemmon, M.; and Naveen, L.. “A Comparison of Profitability and CEO Turnover Sensitivity in Large Private and Public Firms.” Working Paper, Arizona State University (2003).CrossRefGoogle Scholar
Cornelli, F., and Karakaş, O.. “CEO Turnover in LBOs: The Role of Boards.” Working Paper, London Business School (2015).Google Scholar
Cornelli, F.; Kominek, Z.; and Ljungqvist, A.. “Monitoring Managers: Does It Matter?” Journal of Finance, 68 (2013), 431–481.Google Scholar
Coughlan, A., and Schmidt, R.. “Executive Compensation, Management Turnover, and Firm Performance: An Empirical Investigation.” Journal of Accounting and Economics, 7 (1985), 43–66.Google Scholar
Coval, J., and Moskowitz, T.. “Home Bias at Home: Local Equity Preference in Domestic Portfolios.” Journal of Finance, 54 (1999), 1–39.CrossRefGoogle Scholar
Denis, D. J.; Denis, D. K.; and Sarin, A.. “Ownership Structure and Top Executive Turnover.” Journal of Financial Economics, 45 (1997), 193–222.Google Scholar
Derrien, F.; Kecskés, A.; and Thesmar, D.. “Investor Horizons and Corporate Policies.” Journal of Financial and Quantitative Analysis, 48 (2013), 1755–1780.CrossRefGoogle Scholar
Fama, E., and French, K.. “Industry Costs of Capital.” Journal of Financial Economics, 43 (1997), 153–193.Google Scholar
Fisman, R.; Khurana, R.; Rhodes-Kropf, M.; and Yim, S.. “Governance and CEO Turnover: Do Something or Do the Right Thing?” Management Science, 60 (2014), 319–337.Google Scholar
Gao, H.; Harford, J.; and Li, K.. “Determinants of Corporate Cash Policy: Insights from Private Firms.” Journal of Financial Economics, 109 (2013), 623–639.CrossRefGoogle Scholar
Gao, H., and Li, K.. “A Comparison of CEO Pay–Performance Sensitivity in Privately-Held and Public Firms.” Journal of Corporate Finance, 35 (2015), 370–388.Google Scholar
Guo, L., and Masulis, R.. “Information Quality and CEO Turnover.” Working Paper, University of New South Wales (2012).Google Scholar
Harford, J.“Takeover Bids and Target Directors’ Incentives: The Impact of a Bid on Directors’ Wealth and Board Seats.” Journal of Financial Economics, 69 (2003), 51–83.Google Scholar
Huson, M. R.; Malatesta, P. H.; and Parrino, R.. “Managerial Succession and Firm Performance.” Journal of Financial Economics, 74 (2004), 237–275.Google Scholar
Huson, M. R.; Parrino, R.; and Starks, L. T.. “Internal Monitoring Mechanisms and CEO Turnover: A Long-Term Perspective.” Journal of Finance, 56 (2001), 2265–2297.CrossRefGoogle Scholar
Jenter, D., and Kanaan, F.. “CEO Turnover and Relative Performance Evaluation.” Journal of Finance, 70 (2015), 2155–2184.CrossRefGoogle Scholar
Jenter, D., and Lewellen, K.. “Performance-Induced CEO Turnover.” Working Paper, Stanford University (2014).Google Scholar
Kahn, C., and Winton, A.. “Ownership Structure, Speculation, and Shareholder Intervention.” Journal of Finance, 53 (1998), 99–129.Google Scholar
Kaplan, S. N., and Minton, B. A.. “How Has CEO Turnover Changed?” International Review of Finance, 12 (2012), 57–87.Google Scholar
Kaplan, S. N.; Sensoy, B.; and Strömberg, P.. “Should Investors Bet on the Jockey or the Horse? Evidence from the Evolution of Firms from Early Business Plans to Public Companies.” Journal of Finance, 64 (2009), 75–115.Google Scholar
Ke, B.; Petroni, K.; and Safieddine, A.. “Ownership Concentration and Sensitivity of Executive Pay to Accounting Performance Measures: Evidence from Publicly and Privately-Held Insurance Companies.” Journal of Accounting and Economics, 28 (1999), 185–209.Google Scholar
Kolasinski, A. C., and Siegel, A. F.. “On the Economic Meaning of Interaction Term Coefficients in Non-Linear Binary Response Regression Models.” Working Paper, Texas A&M University (2010).Google Scholar
Lel, U.; Miller, D.; and Reisel, N.. “Differences in Agency Problems between Public and Private Firms: Evidence from Top Management Turnover.” Working Paper, Virginia Tech (2014).Google Scholar
Parrino, R.“CEO Turnover and Outside Succession: A Cross-Sectional Analysis.” Journal of Financial Economics, 46 (1997), 165–197.CrossRefGoogle Scholar
Parrino, R.; Sias, R. W.; and Starks, L. T.. “Voting with Their Feet: Institutional Ownership Changes around Forced CEO Turnover.” Journal of Financial Economics, 68 (2003), 3–46.CrossRefGoogle Scholar
Stein, J. C.“Takeover Threats and Managerial Myopia.” Journal of Political Economy, 96 (1988), 61–80.Google Scholar
Stein, J. C.“Efficient Capital Markets, Inefficient Firms: A Model of Myopic Corporate Behavior.” Quarterly Journal of Economics, 104 (1989), 655–669.Google Scholar
Taylor, L. A.“Why Are CEOs Rarely Fired? Evidence from Structural Estimation.” Journal of Finance, 65 (2010), 2051–2087.Google Scholar
Warner, J. B.; Watts, R. L.; and Wruck, K. H.. “Stock Prices and Top Management Changes.” Journal of Financial Economics, 20 (1988), 461–492.Google Scholar
Weisbach, M. S.“Outside Directors and CEO Turnover.” Journal of Financial Economics, 20 (1988), 431–460.Google Scholar
Supplementary material: File

Gao supplementary material

Gao supplementary material

Download Gao supplementary material(File)
File 74 KB