CEO turnover and company performance: Sensitivity and empirical estimates

Abstract

Solving organizational effectiveness problems is largely dependent on the quality of the corporate governance system. One of its main aspects is characteristics and actions of a firm’s CEO. The paper evaluates how CEO turnover affects a company’s performance. Having conducted a critical analysis of the current approaches describing its role and impact on business success, the authors substantiate the research methodological domain: a synthesis of theories of neoinstitutionalism, organization and strategic management. The research method is panel regression with fixed effects. The information base includes the data from 54,341 Russian joint stock companies for the period 2006–2017. A number of variations of the basic model allowed us to establish a statistically significant negative relationship between the change in revenue and CEO turnover in the short term. The obtained results have confirmed the provisions of the theory of the firm regarding the necessity to adapt a CEO to the company’s external and internal environment. The paper shows that foreign CEOs and owners (shareholders) are faster to adapt to a new position, which accelerates the growth of business performance indicators. At the same time, the research demonstrates that a decline in a company’s performance has a short-term effect. This means that boards of directors should not take hasty decisions to switch the CEO after a short-term poor performance.

Keywords

• corporate governance
• CEO
• company performance
• CEO turnover
• public company
• Russian company