Is CEO human capital related to firm performance?

Hutchinson, Marion R. & Russell, Mark (2013) Is CEO human capital related to firm performance? In EAA 2013 : European Accounting Association 36th Annual Conference, 2-5 May 2013, Paris, France.

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The global economy experienced continuous growth from 2002 to 2007 until the U.S. subprime mortgage crisis caused instability in worldwide stock markets. Simultaneously, global CEO turnover continued to fall to 13.8 percent in 2007. In contrast, the CEO turnover rate in Australia increased to 18 percent in 2007. The purpose of this paper is to determine under what conditions a change in a CEO is associated with firm performance. Succinctly, does the firm’s decision to replace the CEO depend on the CEO’s human capital or firm performance? The empirical study of Australian listed firms (2005 – 2008) shows that firm performance is not a determinant of CEO turnover, rather a CEO with less valuable human capital is more likely to be replaced. The study also finds that merely changing the CEO is not associated firm performance. Rather, there is a positive association between firm performance and the successor’s general human capital for firms that replace the CEO. Specifically, it is the internal successor’s general human capital that is an important determinant of increasing firm performance. These results are important because they imply that CEO turnover is a result of a more active market for CEOs and contributes to explaining why firms retain CEOs despite poor firm performance.

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ID Code: 60038
Item Type: Conference Paper
Refereed: Yes
Keywords: Human capital, CEO change, Firm value
Subjects: Australian and New Zealand Standard Research Classification > COMMERCE MANAGEMENT TOURISM AND SERVICES (150000)
Australian and New Zealand Standard Research Classification > COMMERCE MANAGEMENT TOURISM AND SERVICES (150000) > BUSINESS AND MANAGEMENT (150300)
Divisions: Current > QUT Faculties and Divisions > QUT Business School
Current > Schools > School of Accountancy
Copyright Owner: Copyright 2013 Please consult the authors
Deposited On: 17 May 2013 01:31
Last Modified: 21 Mar 2014 02:57

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