Academic journal article Journal of Management and Organization

The Impact of Executive Job Demands on Dismissals of Newly Appointed CEOs

Academic journal article Journal of Management and Organization

The Impact of Executive Job Demands on Dismissals of Newly Appointed CEOs

Article excerpt

(ProQuest: ... denotes formulae and/or non-US-ASCII text omitted; see image)


Recent research has increasingly shown that CEO dismissal is a growing phenomenon (Wiersema, 2002; Allgood & Farrell, 2003;Wiersema & Zhang, 2011). Particularly, the early departure of CEOs with declining tenure has occurred more frequently in recent years (Khurana, 2001; Wiersema, 2002; Zhang, 2008). The early departure of CEO, called dismissal of a newly appointed CEO in our study, refers to the situation in which a newly appointed CEO is dismissed by the board of directors shortly after holding the CEO position (Finkelstein & Hambrick, 1996; Zhang, 2008). The dismissal of newly appointed CEOs threatens the stability of the firms (Kesner & Sebora, 1994), firm performance, and firm strategies (Hambrick & Mason, 1984; O'Shannassy, 2010), leading to organizational disruption and lost opportunities (Kesner & Sebora, 1994; Khurana, 2001). As a matter of fact, dismissing newly appointed CEOs before they fully demonstrate their leadership may potentially result in a waste of executives' talents and impede the establishment of organizational routines that stakeholders highly regard (Shen, 2003). Therefore, it is imperative to know the drivers of newly appointed CEO dismissal to prevent unnecessary organizational disruption and wanton disposal of talent.

Previous studies have documented many antecedents of CEO turnover or CEO dismissal, such as poor performance (e.g., Weisbach, 1988), CEO's weak power (Shen & Cannella, 2002), unfavorable actions with urgency (Gabarro, 1987), the obsolescence of CEO's competence (Ocasio, 1994), information asymmetry (Zhang, 2008), and boards of directors' over-emphasis on the candidate celebrity status (Khurana, 2001). However, little attention is paid to the aspect of executive job demands (Hambrick, Finkelstein, & Mooney, 2005) which when taken into account is particularly critical for CEOs, because CEOs face more challenging managerial tasks (Egelhoff, 1991; Mintzberg, 1973) and their jobs are idiosyncratic and non-routine (Kesner & Sebora, 1994).

In this study, we examine the drivers of CEO dismissal in a particular setting: the CEO new appointment period. Prior research has suggested that the chance of fit or non-fit between the CEO's capabilities and his/her position is identical during the CEO's entire tenure (e.g., Holmstrom, 1982; Weisbach, 1988). Recently, scholars have begun to investigate the chance of fit/non-fit at the different stages of CEO tenure (e.g., Chen & Hambrick, 2012). However, the chance of fit/non-fit during the new appointment period is underexplored, though scholars have recognized that it is crucial to assess the quality of newly appointed CEOs (Zhang, 2008; Graffin, Boivie, & Carpenter, 2013). In this particular setting, we intend to explain the phenomenon of new CEO dismissal by factors that go beyond the traditionally recognized drivers of CEO dismissal which were studied without consideration of the different stages of CEO tenure.

Applying the aspect of executive job demands (Hambrick, Finkelstein, & Mooney, 2005) paired with information-processing theory (Galbraith, 1973; Tushman & Nadler, 1978; Egelhoff, 1991), we propose that the dismissal of a newly appointed CEO is the outcome of a mismatch between executive job demands and the new CEO's capabilities. Within this context, the board of directors is challenged to identify a capable CEO during the CEO selection process. We also examine the moderating effect of CEO origin that may help a newly appointed CEO avoid dismissal. Analyzed by logit regression models, our findings, based on an unbalanced panel data set including 436 US firms with 1,172 observations, support our hypotheses. We found newly appointed CEO in more diversified firms is more vulnerable to dismissal, while the possibility of dismissal decreases when the new CEO is an insider.

Our research contributes to the literature on CEO dismissal and succession in three ways. …

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