Thursday, March 14, 2013

Executive Accountability Around the World: Sources of Cross-national Variation in Firm Performance–CEO Dismissal Sensitivity

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Strategic Organization 11, 1 (2013) 78-109

In this study, the authors investigate why CEOs seem to be held more accountable for poor firm performance in some countries than others. The article integrates research from comparative corporate governance and agency theory to identify and evaluate four fundamental assumptions underlying most theoretical arguments linking performance and dismissal: (1) CEOs are personally responsible for firm performance outcomes; (2) boards/owners have the power to dismiss CEOs; (3) firm performance measures are meaningful; and (4) suitable alternative candidates for the CEO role are available. The authors argue that CEO accountability will vary in line with the extent to which these assumptions are more or less valid from one country to the next. They provide robust evidence – across both market-based and accounting-based measures – that CEOs are more likely to be dismissed following poor firm performance in countries where managerial discretion is high, where firm performance measures are more meaningful, and where the CEO labor market is more developed. However, the authors do not find support for their prediction that CEO accountability varies in line with cross-national differences in CEO power asymmetry.