Abstract:
We test the relevance of changes in the top management team (TMT) after the appointment of a new CEO due to firm operating performance. Our results suggest an increase in executive turnover during the early years of a CEO’s tenure. We find that executive dismissals occur after poor firm performance the year before. If the firm did not perform well during the past year, the new CEO resorts to evaluating the TMT. As a result, s/he would blame some of the executives leading to their dismissal. We find that firms enjoy an increase in firm performance after executive dismissals. Thus, we conclude that the incumbent executive lacks qualifications and is responsible for poor firm performance prior to his/her dismissal.
