CEO Tenure, Performance and Turnover in S&P 500 Companies

John C. Coates, IV, Reinier H. Kraakman
2010 Social Science Research Network  
The centrality of the CEO is reflected in the empirical literature linking CEO turnover to poor firm performance. However, less is known about the institutional and personal correlates of CEO turnover. In this study, we find two CEO characteristics interact with turnover: tenure and ownership. We interpret our results as indicating that CEOs of S&P 500 firms divide into two groups with different tenure patterns -"owners" (who have large personal shareholdings) and "managers" (who have smaller
more » ... ldings). The tenure of manager-CEOs (as opposed to owner-CEOs) exhibits a term structure loosely similar to the one produced by the tenure process at academic institutions. Turnover of all kinds is low during a CEO's first four years on the job. In contrast, once a CEO reaches his fifth year, retirements begin a multi-year increase and exits via merger exhibit a large one-year spike. These term effects are strongest for relatively young CEOs, and appear to be independent of such factors as firm performance or retirement norms. We also find that deals and retirements are partially related, but partially distinct, modes of CEO turnover in other respects, which are similar along some dimensions but sharply different along others. 7 We are grateful to Allen Ferrell for supplying us with the program and parameters used to calculate RELATIVEQ.
doi:10.2139/ssrn.925532 fatcat:w5aa6ny4inavldh2gaatybve54