Abstract

We examine firm performance changes around forced CEO turnovers which are caused by conflicts between corporate boards and CEOs. We investigate firm performance using two measures: operating performance and abnormal stock returns. Many previous studies analyze firm performance changes around forced top management turnovers, but to date no one has examined conflict-induced CEO turnover events. Our results show that a firm’s operating performance declines preceding turnovers and improves following turnovers. However, unlike most previous studies, we find negative abnormal stock returns following CEO turnovers, suggesting that investors do not perceive CEO turnover announcements as good news when CEOs are dismissed for conflicts. We employ a unique hand-collected dataset on forced CEO turnovers as well as board and CEO characteristics and use multivariate regression analyses to test whether board and successor CEO characteristics influence a firm’s post-turnover firm performance. The results show no significant relationship between these variables and firm performance.