CEO turnovers due to poor industry performances: An examination of the boards’ retention criteria

•Industry and firm-specific returns relate to CEO forced turnovers differently across industrial conditions.•CEO forced turnovers relate more to idiosyncratic returns during recessions but more to industry returns during booms.•Stock prices are more reflective of CEOs’ abilities during recessions th...

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Bibliographic Details
Published in:Journal of accounting and public policy 2024-03, Vol.44, p.107178, Article 107178
Main Authors: Li, Lin, Lam, Peter, Tong, Wilson H.S., Law, Justin
Format: Article
Language:English
Subjects:
Quantitative Finance
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Summary:•Industry and firm-specific returns relate to CEO forced turnovers differently across industrial conditions.•CEO forced turnovers relate more to idiosyncratic returns during recessions but more to industry returns during booms.•Stock prices are more reflective of CEOs’ abilities during recessions than in booms. Numerous studies examine CEO turnover but rarely in the context of business cycles. We demonstrate that the role of the set of turnover decision parameters could change according to industry conditions. Specifically, idiosyncratic returns are more conducive to forced CEO turnover probabilities during recessions than during booms, whereas the opposite is true for industry returns. We provide evidence supporting that idiosyncratic returns are more correlated with managerial ability and stock prices are more informative during recessions. Our findings shed light on how CEOs are assessed by company boards when making turnover decisions.
ISSN:0278-4254
1873-2070
DOI:10.1016/j.jaccpubpol.2024.107178