Skip to main content

Does Firing a CEO Pay Off?

Columbia Article small

But does it pay to fire underperforming CEOs? Doing so can cost shareholders a bundle in severance packages and golden parachute payments. When CEOs at Hewlett-Packard, Bank of New York Mellon, Yahoo!, Kellogg’s, and United Airlines were asked to step down, they walked away with severance packages of tens of millions of dollars. In the S&P 500, CEOs are entitled to receive an average of $22 million in the event they are fired.

The corporate investment decisions of CEO successors offer fundamental insights into the corporate performance-resuscitating role of CEO replacements and whether they improve corporate decision making. Recent research has highlighted the importance of corporate investment decisions in CEO careers, with poor investment results a key reason for forced CEO exits. This is not surprising in view of the paramount importance of corporate investment for the operating and stock performance of a listed company as well as for the whole economy (in 2017, U.S. companies invested more than $4 trillion in growth). To address this question, research has focused on Mergers and Acquisitions (M&A) – the most important form of corporate investment with clearly measurable outcomes – and has documented that poorly performing bidders (those that undertake value destroying M&A) are more likely to be fired.

Yet, two important questions remain: Do new CEOs beat their predecessors’ record of firm performance through superior M&A and other investments? And can monitoring mechanisms linked to the firm’s corporate governance and ownership structure improve the firm’s investment performance through superior CEO hiring decisions?

Read the full story on the Columbia Law School Blue Sky Blog

Published 20 July 2018

You might also like

ICMA Centre Stock Market Competition 2013

29 July 2013
The annual ICMA Centre Stock Market Competition 2013 took place on Monday 08th July. The competition open to year 12 students from around the Berkshire area, saw the Willink school gain 1st place for the second year in a row, followed by students from Reading School who gained both 2nd and 3rd place.

The impact of the Financial Transaction Tax on the European repo market

10 April 2013
Richard Comotto, Senior Visiting Fellow at the ICMA Centre, Henley Business School, has recently produced a report for the International Capital Market Association’s European Repo Council (ERC) on the impact of the proposed European Financial Transaction Tax. The report, entitled: "Collateral damage: the impact of the Financial Transaction Tax on the European repo market and its consequences for the financial markets and the real economy", is available online from the ICMA website.

Solidus Securities Scholarship Awarded

8 December 2010
The ICMA Centre is delighted to announce the winner of this year's Solidus Securities Scholarship, MSc student Eleana Kitsara.