Why Are CEOs Rarely Fired? Evidence from Structural Estimation

Why Are CEOs Rarely Fired? Evidence from Structural Estimation

I evaluate the forced CEO turnover rate and quantify effects on shareholder value by estimating a dynamic model. The model features learning about CEO ability and costly turnover. To fit the observed forced turnover rate, the model needs the average board of directors to behave as if replacing the C...

Ausführliche Beschreibung

Gespeichert in:
Bibliographische Detailangaben
Veröffentlicht in:The Journal of finance (New York) 2010-12, Vol.65 (6), p.2051-2087
1. Verfasser: TAYLOR, LUCIAN A.
Format: Artikel
Sprache:eng
Schlagworte:
Business management
Business strategies
Chief executive officers
Cost efficiency
Cost estimates
Cost estimation models
Economic models
Employee turnover
Estimating techniques
Job performance
Labour turnover
Management research
Management techniques
Modeling
Organizational analysis
Profitability
Profitable firms
Senior management
Shareholder value
Shareholders
Stockholders
Studies
Total costs
Online-Zugang:Volltext
Tags: Tag hinzufügen
Keine Tags, Fügen Sie den ersten Tag hinzu!
Beschreibung
Zusammenfassung:I evaluate the forced CEO turnover rate and quantify effects on shareholder value by estimating a dynamic model. The model features learning about CEO ability and costly turnover. To fit the observed forced turnover rate, the model needs the average board of directors to behave as if replacing the CEO costs shareholders at least $200 million. This cost mainly reflects CEO entrenchment rather than a real cost to shareholders. The model predicts that shareholder value would rise 3% if we eliminated this perceived turnover cost, all else equal. The model also helps explain the relation between CEO firings, tenure, and profitability.
ISSN:0022-1082
1540-6261
DOI:10.1111/j.1540-6261.2010.01610.x