Session Chair: Dirk Jenter, London School of Economics
Personal Cost of Executive Turnovers
Kasper Meisner Nielsen
Hong Kong University of Science and Technology
Discussant(s): Cláudia Custódio (Imperial College Business School)
This study examines how costly forced turnover is for the CEO using income data from the official records at the Danish Tax Authorities. We find that ousted CEOs’ personal income is 40% lower in the five years following forced turnovers. The decline is driven by labor market outcomes: Labor and entrepreneurial incomes decline, while financial incomes increase. Consistent with the executive labor market being the main channel for the lower income, we find larger declines in income for executives with poor idiosyncratic firm performance during their tenures. Overall, the findings suggest that forced executive turnover is an important internal corporate governance mechanism.
Changing of the Guards: Does Succession Planning Matter?
Discussant(s): Bang Nguyen (University of Cambridge)
Using hand-collected data on succession planning disclosures in a comprehensive sample of public firms undergoing management transitions over 1993-2010, we provide novel evidence on the role of formal succession planning in CEO turnover decisions. First, succession planning ensures leadership continuity by reducing the likelihood of forced CEO turnover and the incidence of non-CEO executive team resignations, and by making the departing CEO an integral part of the transition process. Second, succession planning is associated with significantly lower stock return volatility surrounding CEO turnover as well as a much faster decline in volatility with the successor’s tenure, suggesting a fundamentally different nature of learning about CEO ability. Third, succession planning significantly improves the efficiency of executive transitions by raising turnover-performance sensitivity and allowing for proper filtering of industry factors in CEO dismissals. Finally, succession planning impacts CEO pay structure and reduces agency conflicts following CEO turnover.
Powerful Blockholders and CEO Turnover
Chishen Wei, Lei Zhang
Nanyang Technological University
Discussant(s): Zacharias Sautner (Frankfurt School of Finance and Management)
We identify the power of institutional blockholders to influence management using previous occurrences of forced CEO turnover at other firms in the blockholders’ overall portfolio. We create a "powerful blockholder linkage" measure that strongly predicts future forced CEO turnover. These effects are larger when "powerful" blockholders are more motivated to monitor and when they have had valuable monitoring experience. Moreover, firms with powerful blockholders display higher CEO turnover-performance sensitivity, pursue more value-increasing mergers, and have higher firm value. Overall, our results suggest that an identifiable group of powerful blockholders play an important role in corporate governance.