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ItemBig Shoes to Fill: CEO Turnover and Pre-Appointment Firm Performance( 2020-08-06)Bayesian learning implies that corporate owners' performance expectations for their CEO are affected by their firm's performance prior to the CEO's appointment because firm asset quality is persistent. Accordingly, we find that the sensitivity of CEO turnover to performance increases in pre-appointment firm performance; that is, a CEO is more likely to be dismissed for underperformance when appointed at a better-performing firm. Consistent with Bayesian learning, we show that this effect increases with firm uncertainty and declines over CEO tenure. We find no evidence that the effect is due to owners' biased assessments of CEO ability or corporate governance quality. Collectively, our results suggest that CEOs, indeed, face a "big shoes to fill" effect that affects their performance-related turnover likelihood.
ItemManagerial Labor Market Mobility and Corporate Social Responsibility: Evidence from a Natural Experiment( 2020-05-29)The staggered rejection of the inevitable disclosure doctrine (IDD) by some U.S. state courts exogenously increases managerial labor market mobility, and we exploit this setting to study whether managerial concerns about external employment potential affect firms' investment in corporate social responsibility (CSR). Using a difference-in-differences estimation, we find a significantly positive effect of the IDD rejection on CSR investment. The impact only manifests in firms with more able CEOs, does not vary with CEO age, is weaker when CEOs are locked in by unvested equity grants, is stronger when external tournament incentives are greater, and is weaker in firms with stronger governance controls, suggesting that it is managerial incentives to increase external employment potential rather than concerns about job loss or shareholder value maximization that drive increasing CSR. In examining CSR investment outcomes in response to the IDD rejection, we find that they are not firm value enhancing but benefit both active CEOs and retired CEOs through a higher likelihood of landing a new executive position and obtaining more external board appointments, respectively.