Two Essays on Turnaround Specialist CEOs

摘要

This dissertation consists of two essays investigating the labor market for CEOs who have developed a reputation for being a turnaround specialist. Turnaround specialists are managers who have developed reputations for having skills and experience in reversing the fortunes of financially distressed and underperforming firms. In the first essay I examine the economic consequences for firms that hire CEOs who, prior to being hired, have acquired a reputation for being a turnaround specialist. Abnormal returns around announcements that turnaround specialists have been hired as CEOs are significantly positive and more than 6 percentage points larger than the returns associated with announcements of other CEO successions. Significant differences exist in the attributes of firms that hire turnaround specialists as CEOs versus firms that hire others as CEOs in ways consistent with several hypotheses that I develop. Specifically, firms that hire turnaround specialists face a higher probability of distress, lower profit rates, and lower pre-succession stock returns than firms that hire others as CEOs. Firms that hire turnaround specialists reduce operating scale and show significant improvement in operating performance on average, indicating that the turnaround specialists' reputation is commensurate with their abilities and managerial style. In the second essay I examine the initial compensation contracts of turnaround specialist CEOs. After controlling for other factors that are associated with managerial compensation, I find that turnaround specialist CEOs earn significantly more total compensation than other newly appointed outside CEOs. Additionally, turnaround specialist compensation is more sensitive to firm performance than that of other newly appointed CEOs, contrary to the notion that career concerns of managers would serve as substitutes for explicit incentive contracts. Turnaround specialists receive a lower proportion of fixed cash compensation and a higher proportion of equity-based incentives than other CEOs, which is consistent with theories that predict incentive compensation comes at a lower cost to successful managers and has higher benefits for firms operating in distress.