CEO Turnover and Relative Performance Evaluation

This paper examines whether CEOs are fired after bad firm performance caused by factors beyond their control. Standard economic theory predicts that corporate boards filter out exogenous industry and market shocks to firm performance when deciding on CEO retention. Using a new hand-collected sample of 1,590 CEO turnovers from 1993 to 2001, the authors document that CEOs are significantly more likely to be dismissed from their jobs after bad industry and bad market performance.