Accounting Department Study Reveals CEOs with Less Tenure Far More Likely to be Fired for Poor Performance than Longer-Term Counterparts
September 06, 2011
|Dhananjay Nanda, a professor of accounting at the School of Business, conducted the research with two professors at Duke University.|
CEOs with fewer than five years on the job are far more likely to be fired for poor performance than those who have served longer, according to a new study out of the School’s Department of Accounting. In fact, the study found, short-tenured CEOs are five to six times more likely to be fired than longer-tenured CEOs in the wake of poor firm performance. This likelihood is unaffected by the power a CEO wields over the board of directors or the firm’s owners. Another key finding of the study was that each negative quarterly performance report increases the likelihood of a CEO firing by 34 to 43 percent for shorter-tenured CEOs, but by only 4 to 11 percent for longer-tenured CEOs.
Researchers also tracked the performance of CEOs who began their appointments at roughly 1,300 publicly-traded U.S. firms between 1995 and 2001. They found that the likelihood of CEO survival was solely affected by firm performance and was not affected by the presence of independent directors on the firm’s board or whether the CEO was also the board chairman.
“If Michael Jordan had a bad game late in his career he was less likely to be benched than if a rookie had a similar bad game,” said Dhananjay Nanda, a professor of accounting at the School of Business and one of the researchers. “The same applies to business leaders. Seasoned players, whether putting up numbers on a scoreboard or a stock exchange, get a lot more breaks than those just off the bench,” added Nanda, who conducted the study with Shane S. Dikolli and William J. Mayew of Duke University. “Our results suggest that this is because seasoned executives have a track record that represents superior managerial ability rather than because their firm is poorly governed.”
The research was the subject of an article published in The Wall Street Journal on Sept. 6.