Predicting CEO turnover in Australia

Abstract

This paper examines factors affecting the probability of forced CEO turnover in Australia from 1996 to I 999. We find that CEOs are being forced out after an extended period of up to five years of poor share price performance. This may be attributed to the longer tenure by CEOs, which significantly moderates the performance-turnover link. We also find that poor performance, the proportion of independent non-executive directors on the board, CEO tenure, and director ownership significantly affect the probability of forced CEO turnover. We provide new evidence that board turnover is a significant explanatory variable of the probability of forced CEO turnover. This suggests that newly appointed directors are better monitors than the replaced directors in dismissing poorly performing CEOs.