Product Market Peers and Relative Performance Evaluation

We investigate the role of Relative Performance Evaluation (RPE) theory in CEO pay and turnover using a product similarity-based definition of peers (Hoberg and Phillips 2016). RPE predicts that firms filter out common shocks (i.e., those affecting the firm and its peers) while evaluating CEO performance and that the extent of filtering increases with the number of peers. Despite the intuitive appeal of the theory, previous tests of RPE find weak and inconsistent evidence, which we argue is due to the imprecise categorization of peers. Using product market peers, we find three pieces of evidence consistent with RPE in relation to CEO pay and forced turnover: (i) on average, firms partially filter out common shocks to stock returns, (ii) the extent of filtering increases with the number of peers, and (iii) firms completely filter out common shocks in the presence of a large number of peers.

Does CEO Turnover Matter? Empirical Evidence from the Philippines

Introduction: This study investigated the market reaction to announcements of CEO turnovers in Philippine-listed companies between January 2008 and December 2018. Turnovers were classified concerning successors’ origin (internal versus external), turnover type (forced versus voluntary), and successors’ gender (male versus female). Methods: Event study methodology using the market model was employed to analyze the hand-collected sample of 136 CEO turnover announcements. Results: Market reaction was significantly positive for internal, external, and voluntary turnover. The market reaction, however, was found to be significantly negative in the case of forced turnover. Similarly, concerning the gender difference, the result showed that market reaction was significantly negative for female CEO appointments and significantly positive for male CEOs. Discussion: The results provide strong evidence that new CEOs’ selected attributes and the turnover’s characteristics are factors that have the explanatory power on the investor’s reaction. The contributions of this study to the literature are threefold. First, it serves as the first empirical evidence of market reaction to CEO turnover from the Philippines emerging market. This study also confirms the finding of the previous studies on CEO turnover by looking into several turnover categories, namely external, internal, forced, and voluntary. Finally, it enriches the limited empirical evidence on the CEOs’ gender effect on abnormal return surrounding the turnover announcement date.

Bid Resistance by Takeover Targets: Managerial Bargaining or Bad Faith?

This paper examines management’s motives for rejecting takeover bids and the associated shareholder wealth effects. We develop measures of initial bid quality and find a significant negative correlation between the quality of a bid and rejection. The likelihood of higher follow-on offers decreases with bid quality and is greater when targets have classified boards and chief executive officers (CEOs) with significant personal wealth tied to the transaction. Target CEOs who fail to close high-quality offers experience a significant rate of forced turnover. Overall, the results support a price improvement motive for contested bids.

Can Paying “Too Much” or “Too Little” Tax Contribute to Forced CEO Turnover?

ABSTRACT Our study examines the effect of corporate tax outcomes on forced CEO turnover. While prior research argues that firms often do not engage in tax avoidance due to reputational concerns, the empirical evidence suggesting the existence of reputational costs is scarce. In a broad sample of firms, we find evidence of a relation between the payment of low taxes and forced turnover. We also find that forced CEO turnover is more likely when the firm pays a high tax rate relative to its peers. Our results are consistent with the existence of previously unexplored individual reputational costs for not engaging in tax avoidance. JEL Classifications: M40; H25.

Executive Turnover Following Option Backdating Allegations

ABSTRACT: We find that the likelihood of forced turnover in the CEO and CFO positions is significantly higher for firms in the aftermath of option backdating than in propensity-score matched control firms. Forced turnover occurs in about 36 percent of the accused firms. The forced turnover rates for CEOs and CFOs are similar and several times higher than normal. The displaced managers are further punished by the managerial labor market, as they are much less likely than control firm managers to be rehired at comparable positions. We also find that backdating firms restructure CEO compensation to rely less on stock options. Finally, we learn the higher turnover extends to the General Counsel. While boards are often viewed as unresponsive to criticisms involving executive compensation, they did respond quite decisively to option backdating allegations and the accompanying adverse publicity. Data Availability: All data used in this study are publicly available from the sources indicated.