Robert Parrino

CEO Turnover and Outside Succession: A Cross-Sectional Analysis

Abstract This study examines chief executive officer (CEO) turnover. It reports new evidence on factors that affect the likelihoods of voluntary and forced turnover, and for both of these turnover types, whether the new CEO is from inside the firm, from another firm in the industry, or from outside the industry. The evidence is consistent with arguments that poor CEOs are easier to identify and less costly to replace in industries that consist of similar firms than in heterogeneous industries. The likelihoods of forced turnover and of an intra-industry appointment increase with industry homogeneity.

Internal Monitoring Mechanisms and CEO Turnover: A Long-Term Perspective

We report evidence on chief executive officer (CEO) turnover during the 1971 to 1994 period. We find that the nature of CEO turnover activity has changed over time. The frequencies of forced CEO turnover and outside succession both increased. However, the relation between the likelihood of forced CEO turnover and firm performance did not change significantly from the beginning to the end of the period we examine, despite substantial changes in internal governance mechanisms. The evidence also indicates that changes in the intensity of the takeover market are not associated with changes in the sensitivity of CEO turnover to firm performance.

Voting with their feet: institutional ownership changes around forced CEO turnover

Abstract We investigate whether institutional investors “vote with their feet” when dissatisfied with a firms management by examining changes in equity ownership around forced CEO turnover. We find that aggregate institutional ownership and the number of institutional investors decline in the year prior to forced CEO turnover. However, selling by institutions is far from universal. Overall, there is an increase in shareholdings of individual investors and a decrease in holdings of institutional investors who are more concerned with holding prudent securities, are better informed, or are engaged in momentum trading. Measures of institutional ownership changes are negatively related to the likelihoods of forced CEO turnover and that an executive from outside the firm is appointed CEO.

Outside Directors and CEO Selection

This paper documents a strong positive relation between the percentage of outside directors and the frequency of outside CEO succession. The likelihood that an executive from outside the firm is appointed CEO increases monotonically with the percentage of outside directors. This monotonic relation is observed for both voluntary and forced departures. Evidence from stock returns around succession announcements indicates that, on average, shareholders benefit from outside appointments, but are harmed when an insider replaces a fired CEO.

Measuring Investment Distortions When Risk-Averse Managers Decide Whether to Undertake Risky Projects

This paper examines distortions in corporate investment decisions when a new project changes firm risk. It presents a dynamic model in which a self-interested, risk-averse manager makes investment decisions at a levered firm. The model, calibrated using data from public firms, is used to estimate the magnitude of distortions in investment decisions. Despite potential wealth transfers from debtholders, managers compensated with equity prefer safe projects to risky ones. Important factors in this decision are the expected changes in the values of future tax shields and bankruptcy costs when firm risk changes. We also evaluate the extent to which this effect varies with firm leverage, managerial risk aversion, managerial non-firm wealth, project size, debt duration, and the structure of management compensation packages.

Horses and Rabbits? Trade-Off Theory and Optimal Capital Structure

This paper examines optimal capital structure choice using a dynamic capital structure model that is calibrated to reflect actual firm characteristics. The model uses contingent claim methods to value interest tax shields, allows for reorganization in bankruptcy, and maintains a long-run target debt to total capital ratio by refinancing maturing debt. Using this model, we calculate optimal capital structures in a realistic representation of the traditional trade-off model. In contrast to previous research, the calculated optimal capital structures do not imply that firms tend to use too little leverage in practice. We also estimate the costs borne by a firm whose capital structure deviates from its optimal target debt to total capital ratio. The costs of moderate deviations are relatively small, suggesting that a policy of adjusting leverage infrequently is likely to be reasonable for many firms.

Spinoffs and wealth transfers: The Marriott case

This paper examines changes in bondholder and shareholder wealth resulting from the 1993 Marriott spinoff. The evidence indicates that there was a wealth transfer from the bondholders to the shareholders and that the total value of the firm declined immediately following the spinoff announcement. The aggregate value of Marriotts equity increased

Variation in the Monitoring Incentives of Outside Stockholders

232 million while the value of its public notes and debentures decreased

Chief Executive Officer Careers in Regulated Environments: Evidence from Electric and Gas Utilities*

333 million. Subsequent modifications of the spinoff plan reduced the bondholder loss, but the value of the debt remained

Uncertainty, Prospectus Content, and the Pricing of Initial Public Offerings

185 million below its pre-anouncement level when the distribution was completed. It is unclear whether the shareholders ultimately benefited from the spinoff.