CEO Dismissal: The role of investment analysts
Article first published online: 28 APR 2011
Copyright © 2011 John Wiley & Sons, Ltd.
Strategic Management Journal
Volume 32, Issue 11, pages 1161–1182, November 2011
How to Cite
Wiersema, M. F. and Zhang, Y. (2011), CEO Dismissal: The role of investment analysts. Strat. Mgmt. J., 32: 1161–1182. doi: 10.1002/smj.932
- Issue published online: 8 SEP 2011
- Article first published online: 28 APR 2011
- Accepted manuscript online: 28 MAR 2011 01:56PM EST
- Manuscript Revised: 20 MAR 2011
- Manuscript Received: 10 APR 2009
- CEO dismissal;
- CEO succession;
- investment analysts;
While poor firm performance has been shown to be a predictor of CEO dismissal, little is known about the role of external constituents on the board's decision to dismiss the firm's CEO. In this study, we propose that investment analysts, as legitimate third-party evaluators of the firm and its leadership, provide certification as to the CEO's ability, or lack thereof, and thus help reduce the ambiguity associated with the board's evaluation of the CEO's efficacy. In addition, the board tends to respond to investment analysts because their stock recommendations influence investors, whom the board wants to appease. Using panel data on the S&P 500 companies for the 2000–2005 period, we find that negative analyst recommendations result in a higher probability of CEO dismissal. Copyright © 2011 John Wiley & Sons, Ltd.