Product Market Competition Shocks, Firm Performance, and Forced CEO Turnover
63 Pages Posted: 4 Dec 2014 Last revised: 18 Jul 2016
Date Written: July 10, 2016
We examine the effect of competition shocks induced by major industry-level tariff cuts on forced CEO turnover. Both the likelihood of forced CEO turnover and its sensitivity to performance increase, particularly for firms with low productivity and high default risk. While CEO’s incentive pay and pay-performance sensitivity increase in firms with strong governance, CEOs are more likely to be forced out in firms with weak governance, especially if there is director turnover. New outside CEOs receive higher incentive pay and have experience in firms with lower cost structures and higher asset sales. Performance and productivity improve after forced turnover.
Keywords: Product Market Competition; Forced CEO Turnover; Corporate Governance
JEL Classification: J33, J41, J63, M4, L1, L2
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