Abstract

Abstract:

This paper proposes that CEO dismissal is a form of penalty that CEOs incur for their record of deviation from historically prevailing norms of appropriate behavior during performance downturns. To verify this argument, I examine CEO dismissal and post-dismissal strategic change in large U.S. companies between 1984 and 2007, when the field in which these firms were embedded was characterized by the prominence of the norms of corporate restructuring for shareholders. My findings are three-fold. First, the effect of performance declines on CEO dismissal was intensified by the extent to which CEOs held a record of deviation from the norms of restructuring—i.e., that of increasing assets, employees, and unrelated diversification. Second, new CEOs were more inclined to engage in restructuring when they took office following the dismissal of predecessors with a record of deviation. Finally, those patterns of CEO dismissal and post-dismissal restructuring became more evident over time as the norms developed. Meanwhile, the findings did not apply prior to the shareholder value era. Consequently, this paper suggests that institutional norms act as interpretive frameworks that enable a board of directors to make sense of performance problems and evaluate managerial competence to resolve those problems. Implications for the literatures on institutional theory and upper echelon research are discussed.

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Additional Information

ISSN
1534-7605
Print ISSN
0037-7732
Pages
pp. 776-816
Launched on MUSE
2020-02-18
Open Access
No
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