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CEO Turnover–Performance Sensitivity in Private Firms

  • Huasheng Gao, Jarrad Harford and Kai Li
Abstract

We compare chief executive officer (CEO) turnover in public and large private firms. Public firms have higher turnover rates and exhibit greater turnover–performance sensitivity (TPS) than private firms. When we control for pre-turnover performance, performance improvements are greater for private firms than for public firms. We investigate whether these differences are due to differences in quality of accounting information, the CEO candidate pool, CEO power, board structure, ownership structure, investor horizon, or certain unobservable differences between public and private firms. One factor contributing to public firms’ higher turnover rates and greater TPS appears to be investor myopia.

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Corresponding author
* Gao, hsgao@ntu.edu.sg, Nanyang Business School, Nanyang Technological University; Harford, jarrad@uw.edu, Foster School of Business, University of Washington; and Li (corresponding author), kai.li@sauder.ubc.ca, Sauder School of Business, University of British Columbia.
Footnotes
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1

We are grateful for helpful comments from an anonymous referee, Matt Billett, Stephen Brown (the editor), Jess Cornaggia, Andrew Ellul, Vivian Fang, Murray Frank, Ruoran Gao, Inmoo Lee, Katharina Lewellen, Rik Sen, Xuan Tian, Margarita Tsoutsoura, Andy Winton, Ting Xu, and Shan Zhao; seminar participants at the Chinese University of Hong Kong, Copenhagen Business School, Erasmus University, Indiana University, Nanyang Technological University, Shanghai Advanced Institute of Finance, the University of Amsterdam, the University of Hawaii, the University of Hong Kong, the University of Minnesota, and Vienna University of Economics and Business; and conference participants at the 2013 Annual Academic Conference on Corporate Governance (Philadelphia), the 2013 London Business School Summer Corporate Finance Symposium (London), the 2013 China International Conference in Finance (Shanghai), the 2013 Northern Finance Association Meetings (Quebec City), and the 2014 Inaugural Edinburgh Corporate Finance Conference (Edinburgh). We also thank Yong Bao Kwang and Chu Chen for excellent research assistance. We acknowledge financial support from the Social Sciences and Humanities Research Council of Canada. All errors are ours.

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