Performance Changes Following Top Management Dismissals




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    • Krannert School of Management, Purdue University, West Lafayette, Indiana. We are grateful for helpful comments received from Linda DeAngelo, Rob Hansen, Greg Kadlec, Scott Lee, David Mayers, Dilip Shome, René Stulz (the editor), Michael Weisbach, Marc Zenner, two anonymous referees, and the workshop participants at North Carolina State University, Ohio State University, and Virginia Tech. This work has been partially supported by summer research grants from the Pamplin College of Business at Virginia Tech.


We document that forced resignations of top managers are preceded by large and significant declines in operating performance and followed by large improvements in performance. However, forced resignations are rare and are due more often to external factors (e.g., blockholder pressure, takeover attempts, etc.) than to normal board monitoring. Following the management change, these firms significantly downsize their operations and are subject to a high rate of corporate control activity. Normal retirements are followed by small increases in operating income and are also subject to a slightly higher than normal incidence of postturnover corporate control activity.