Governance provisions and managerial entrenchment: evidence from CEO turnover of acquiring firms

摘要

Prior studies often assume that governance provisions restrict shareholders' ability to replace managers. However, current literature provides no evidence that firms with a higher number of provisions are less likely to replace the Chief Executive Officer (CEO). This study examines CEO replacements following corporate acquisitions. It documents that CEOs of firms with a higher number of provisions make acquisitions that generate negative bidder returns; however, these CEOs are less likely to leave the firm within 5 years after the acquisition announcement. Some evidence suggests that governance provisions reduce the sensitivity of CEO turnover to bidder returns. The results are especially strong for the staggered board indicator. Acquiring CEOs of firms with staggered boards are less likely to leave the firms voluntarily; they are less likely to face internal discipline from the board of directors and external disciple from the takeover market. Thus, the deployment of governance provisions weakens internal and external discipline of acquiring CEOs.