The role and responsibility of the CEO of an organisation is an extensively researched
field. This research project investigates the drivers of CEO turnover and the factors
affecting the resultant post turnover corporate performance.
An event study methodology, based on share price data from the JSE (Johannesburg
Stock Exchange) was used to evaluate relative corporate performance. A pre event
window of 250 trading days was used to establish corporate performance prior to the CEO
turnover event, and a post event window of 500 trading days was used to evaluate the
performance of the newly installed CEO. A sample of 143 CEO turnover events was
examined, gathered during the period 1 April 2007 to 31 May 2012.
58% of the corporations undergoing CEO turnover were under performing their peers for
one year prior to the turnover event, indicating that poor corporate performance was a
major driver of CEO turnover. However, on further analysis, dissecting the data by
corporation size yielded differing results, with 75% of small corporations undergoing CEO
turnover in the ambit of under-performance, whereas in respect of large corporations, most
CEO turnover was conducted in the circumstance of out-performance.
Overall, CEO turnover yielded a statistically relevant improvement of 13.6% in post event
corporate performance. However, if a corporation was significantly underperforming its
peers prior to the turnover event, the new CEO was likely to improve corporate results by
96%, whereas, if a new CEO took over a significantly out-performing corporation, the post
turnover corporate performance would reduce by 66%. A statistically relevant linear
equation was formulated, predicting the level of post event corporate performance in
relation to the pre event corporate performance.
The variables of CEO tenure, CEO age, internal versus external CEO placements, and
company size were also investigated, yielding interesting observations.