Product Market Competition Shocks, Firm Performance, and Forced CEO Turnover

Abstract

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. These effects are stronger for firms exposed to greater predation risk and with products more similar to those of other firms. CEOs are more likely to be forced out in weak governance firms; however, in good governance firms, CEOs are offered higher incentive pay. New outside CEOs receive higher incentive pay and come from firms with lower cost structures and higher asset sales. Performance and productivity improve after forced turnover. Received November 27, 2014; editorial decision July 18, 2017 by Editor David Denis. Authors have furnished an Internet Appendix , which is available on the Oxford University Press Web site next to the link to the final published paper online.