Outside directors and CEO turnover

MS Weisbach - Journal of financial Economics, 1988 - Elsevier
Journal of financial Economics, 1988Elsevier
This paper examines the relation between the monitoring of CEOs by inside and outside
directors and CEO resignations. CEO resignations are predicted using stock returns and
earnings changes as measures of prior performance. There is a stronger association
between prior performance and the probability of a resignation for companies with outsider-
dominated boards than for companies with insider-dominated boards. This result does not
appear to be a function of ownership effects, size effects, or industry effects. Unexpected …
Abstract
This paper examines the relation between the monitoring of CEOs by inside and outside directors and CEO resignations. CEO resignations are predicted using stock returns and earnings changes as measures of prior performance. There is a stronger association between prior performance and the probability of a resignation for companies with outsider-dominated boards than for companies with insider-dominated boards. This result does not appear to be a function of ownership effects, size effects, or industry effects. Unexpected stock returns on days when resignations are announced are consistent with the view that directors increase firm value by removing bad management.
Elsevier