The Impact of Firm Performance Expectations on CEO Turnover and Replacement Decisions

Abstract

Our analysis suggests that boards focus on deviation from expected performance, rather than performance alone, in making the CEO turnover decision, especially when there is agreement (less dispersion) among analysts about the firm's earnings forecast or there are a large number of analysts following the firm. In addition, our results suggest that boards are more likely to appoint a CEO that will change firm policies and strategies (i.e., an outsider) when forecasted five-year EPS growth is low and there is greater uncertainty (more dispersion) among analysts about the firm's long-term forecasts.