Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/191719
Authors: 
Brochet, Francois
Limbach, Peter
Schmid, Markus M.
Scholz-Daneshgari, Meik
Year of Publication: 
2019
Series/Report no.: 
CFR Working Paper 16-11
Abstract: 
Our study is the first to provide systematic evidence of a hump-shaped CEO tenure-firm value relation. This pattern is supported by announcement returns to sudden CEO deaths, which mitigate endogeneity concerns. Furthermore, the hump shape is subject to meaningful cross-sectional variation: firm value starts to decline after fewer years of CEO tenure i) in more dynamic industries, in which the optimal CEO-firm match changes more frequently, ii) if CEOs are less adaptable to changes, iii) if CEO entrenchment is higher. Lastly, financial reporting quality also follows a hump shape while earnings smoothing increases over CEO tenure, suggesting that CEOs entrench themselves by obfuscating their declining performance. While we find evidence suggesting optimal retention by boards on average, some CEOs stay past their “peak”, primarily because of a deteriorating CEO-firm match in conjunction with increasing entrenchment.
Subjects: 
CEO adaptability
corporate governance regulation
entrenchment
environmental dynamics
financial reporting quality
firm value
JEL: 
G30
G34
J24
Document Type: 
Working Paper
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