CEO turnovers due to poor industry performances: An examination of the boards’ retention criteria

Numerous studies examine CEO turnover but rarely in the context of business cycles. We demonstrate that the role of the set of turnover decision parameters could change according to industry conditions. Specifically, idiosyncratic returns are more conducive to forced CEO turnover probabilities during recessions than during booms, whereas the opposite is true for industry returns. We provide evidence supporting that idiosyncratic returns are more correlated with managerial ability and stock prices are more informative during recessions. Our findings shed light on how CEOs are assessed by company boards when making turnover decisions.