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Does Firing a CEO Pay Off?
Author(s) -
Alexandridis George,
Doukas John A.,
Mavis Christos P.
Publication year - 2018
Publication title -
financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.647
H-Index - 68
eISSN - 1755-053X
pISSN - 0046-3892
DOI - 10.1111/fima.12228
Subject(s) - hedge fund , chief executive officer , business , shareholder value , shareholder , asset (computer security) , executive compensation , accounting , monetary economics , independence (probability theory) , value (mathematics) , investment (military) , officer , finance , corporate governance , economics , management , statistics , computer security , mathematics , machine learning , politics , computer science , political science , law
We examine whether involuntary chief executive officer (CEO) replacements pay off by improving firm prospects. We find CEO successors’ acquisition investments to be associated with significantly higher shareholder gains relative to their predecessors and the average CEO. This improvement in postturnover acquisition performance appears to be a function of board independence, hedge fund ownership, and the new CEO's relative experience. CEO successors also create sizable shareholder value by reversing prior investments through asset disposals and discontinuing operations and by employing more efficient investment strategies. Our evidence suggests that firing a CEO pays off.