Impact Of Firm Performance Expectations On Top Management Turnover And Replacement Decisions

Top management turnover is not only an extreme constraint mechanism,but also an import measure of the efficiency of corporate governance.Jenson and Warner proposed that Firm top management turnover is a key index to understand the variable that restrain manager and judge the enterprise administration(Jenson & Warner,1988).Effective corporate governance can replace the unqualified CEO with suitable ones who are also very hardworking.With the development of domestic stock market,lots of listed company declared the news of changing CEO.Why do listed company change CEO? What’s the basis of board of directors’ decision? These questions will be discussed in this research.The paper can be divided into the following aspects:1 The academic circles at home and abroad hold a lot of opinions about the reasons of changing top management.I divided the reasons into the performance of company,the social environment and characteristics of board of directors,and found that most of them are similar,except that domestic research doesn’t involve firm performance expectations.So the intention of this research it to make up for the blankness in this area.2 The paper used relevant theories of management and economics to analyze the CEO turnover theoretically,including the cost of agency,human capital theory and entrepreneurship.Since the existence of information asymmetry,Board of directors can decide to change CEO if they don’t intend to maximize shareholders values.To improve their human capital,CEO may try hard to avoid being fired.3 I collected the data of the CEO turnover during 2012 to 2014,and made descriptive statistics about the changing quantity,reason,age and so on.The number of CEO turnover is increasing year by year,and most of them are not belong to normal change.4 I examined CEO turnover and replacement decisions from a different perspective by examine the role of performance expectations.I hypothesized that,controlling the overall firm performance,there will be a negative relation between forecast errors and CEO turnover.Moreover,the relation between forecast errors and CEO turnover is stronger when the forecast error is more unexpected.A large negative forecast error is more unexpected when there was consensus among analysts(low dispersion)regarding the forecast.5 After using logit test to examine the data from 2012 to 2014,I found an inverse relation between the likelihood of CEO turnover and industry-adjusted forecast errors.Again,consistent with the hypothesis,the results suggest that when the signal from the forecast error is more precise(e.g.,there is less dispersion)it is accorded more weight in the turnover decision.