Dismissal of Newly Appointed CEOs: A Behavioral Theory Perspective

Abstract

This study examines the role of former CEO performance on dismissal of newly appointed CEOs. Drawing from behavioral theory, I propose that when the performance of newly appointed CEO is below that of the former CEO, the new CEO is more likely to be dismissed soon after his appointment. In addition, I examine firm size as a moderator in this linkage between former CEO performance and dismissal of the newly appointed CEO. Specifically, I predict that the larger the firms, the impact of boards comparison between the predecessors performance on the successor would be reduced. The results from my analysis of CEO dismissal events among S&P 500 companies between 2001-2005 generally support my predictions.