Information, Incentives, and CEO Replacement

• 成果类型: Article
• 署名作者: Meng, Xiaojing
• 署名单位: New York University
• 刊物名称: ACCOUNTING REVIEW
• ISSN/ISSBN: 0001-4826
• DOI: 10.2308/TAR-2019-0494
• 发表日期: 2024
• 页码: 369-393
• 关键词: turnover; entrenchment; management; DIRECTORS; boards; pay

摘要

There are instances where CEO turnover occurs, even if the company has not made any significant strategy changes, and the new CEO possesses similar abilities as the predecessor. This paper aims to provide a rational explanation for this seemingly irrational phenomenon. One possible reason for this aggressive CEO turnover is the board's desire to reduce the information rents earned by the privately informed CEO. Specifically, the incumbent CEO has a temptation to sandbag the board about profitability prospects to secure more generous incentive pay for future implementation, and a (seemingly aggressive) replacement policy helps discourage this kind of gaming. That is, instead of information-based entrenchment as suggested by the literature (Laux 2008; Inderst and Mueller 2010), this paper shows a countervailing effect that the CEO's private information (combined with the later-stage moral hazard problem) may lead to her dismissal more often than the ex post efficient benchmark. JEL Classifications: D86; G34; M41.