When Does the Board Blame the CEO for Poor Firm Performance? Extreme Resource Reallocation and the Board's Industry and CEO Experience
Journal
British Journal of Management
Date Issued
July 2020
DOI
10.1111/1467-8551.12384
Abstract
This study sheds light on our understanding of when boards dismiss the CEO by considering the inherent conflict created by the board's advisory role when the firm underperforms. Using a sample of US firms listed in Standard & Poor's ExecuComp for the period 2000–2012 we find that, when a firm underperforms, extreme resource reallocation increases the likelihood of CEO dismissal. This relationship is positively moderated by the board's industry and CEO experience. The study contributes to the literature on corporate governance by identifying the conditions that trigger dismissal of the CEO in light of boards’ motive to protect their reputation.