Hostname: page-component-cd9895bd7-7cvxr Total loading time: 0 Render date: 2024-12-23T11:28:18.843Z Has data issue: false hasContentIssue false
  • English
  • Français

The impact of executive job demands on dismissals of newly appointed CEOs

Published online by Cambridge University Press:  10 February 2015

Yu-Kai M Wang  and
Kun M Yang
Yu-Kai M Wang*
Affiliation:
Department of Business Administration, Soochow University, Taipei, Taiwan, ROC College of Business Administration, Central Michigan University, Mt Pleasant, MI, USA
Kun M Yang
Affiliation:
College of Business Administration, Central Michigan University, Mt Pleasant, MI, USA
*
Corresponding author: [email protected]
Get access Rights & Permissions [Opens in a new window]

Abstract

Why are some newly appointed CEOs dismissed from their positions while others are not? Is it hard for newly appointed CEOs to survive in highly diversified firms? Drawing upon the concepts of executive job demands and information-processing theory, we argue that newly appointed CEOs face entirely different degrees of complexity and challenges in their role, and that firms’ product diversification and international diversification predict dismissals of newly appointed CEOs after controlling for other possible explanatory variables. Additionally, we propose that appointment of a new outsider CEO makes newly appointed CEOs more vulnerable to dismissal and consequently strengthens the predicted relationships. The empirical results support our arguments. These results suggest that the demands faced by a high degree of (product or international) diversification are likely to present challenges that increase the likelihood of corporate disruption through the departures of newly appointed CEOs. Contributions to the CEO dismissal and succession literature are discussed.

Keywords

executive job demandsdismissal of newly appointed CEOinternational diversificationproduct diversification
Type
Research Article
Information
Journal of Management & Organization , Volume 21 , Issue 6 , November 2015 , pp. 705 - 724
Copyright
Copyright © Cambridge University Press and Australian and New Zealand Academy of Management 2015 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Allgood, S., & Farrell, K. A. (2003). The match between CEO and firm. Journal of Business, 76(2), 317–341.Google Scholar
Anderson, U., Forsgren, M., & Holm, U. (2007). Balancing subsidiary influence in the federative MNC: A business network view. Journal of International Business Studies, 38(5), 802–818.CrossRefGoogle Scholar
Andrews, K. R. (1981). Corporate strategy as a vital function of the board. Harvard Business Review, 56, 174–184.Google Scholar
Ballinger, G. A., & Marcel, J. J. (2010). The use of an interim CEO during succession episodes and firm performance. Strategic Management Journal, 31(3), 262–283.Google Scholar
Barney, J. (1991). Firm resources and sustainable competitive advantage. Journal of Management, 17(1), 99–120.Google Scholar
Bartlett, C. A., & Ghoshal, S. (1989). Managing across borders: The transnational solution. Boston, MA: Harvard Business School Press.Google Scholar
Castanias, R. P., & Helfat, C. E. (1991). Managerial resources and rents. Journal of Management, 17(1), 155–171.CrossRefGoogle Scholar
Castanias, R. P., & Helfat, C. E. (2001). The managerial rents model: Theory and empirical analysis. Journal of Management, 27(6), 661–678.Google Scholar
Caves, R. E. (1974). Multinational firms, competition, and productivity in host-country markets. Economica, 41(162), 176–193.Google Scholar
Chandler, A. D. (1962). Strategy and Structure. Cambridge, MA: M.I.T. Press.Google Scholar
Chatterjee, S., & Wernerfelt, B. (1991). The link between resources and type of diversification: Theory and evidence. Strategic Management Journal, 12(1), 33–48.Google Scholar
Chen, G., & Hambrick, D. C. (2012). CEO replacement in turnaround situations: Executive (mis) fit and its performance implications. Organization Science, 23(1), 225–243.Google Scholar
Chi, T. (1994). Trading in strategic resources: Necessary conditions, transaction cost problems, and choice of exchange structure. Strategic Management Journal, 15(4), 271–290.Google Scholar
Contractor, F. J., Kundu, S. K., & Hsu, C. C. (2003). A three-stage theory of international expansion: The link between multinationality and performance in the service sector. Journal of International Business Studies, 34(1), 5–19.Google Scholar
Cyert, R. M., & March, J. G. (1963). A behavioral theory of the firm. Englewood Cliffs, NJ: Prentice-Hall.Google Scholar
Dess, G. G., & Beard, D. W. (1984). Dimensions of organizational task environments. Administrative Science Quarterly, 29(1), 52–73.Google Scholar
Doz, Y., & Prahalad, C. K. (1984). Patterns of strategic control within multinational corporations. Journal of International Business Studies, 15(2), 55–72.Google Scholar
Eden, L., Thomas, D., & Olibe, K. (2002). Why multinationality matters. In P. Gray (Ed.), Extending the eclectic paradigm in international business: Essays in honor of John Dunning. Cheltenham, UK: Edward Edgar Publishing.Google Scholar
Egelhoff, W. G. (1982). Strategy and structure in multinational corporations: An information-processing approach. Administrative Science Quarterly, 27(3), 435–458.Google Scholar
Egelhoff, W. G. (1988). Organizing the multinational enterprise: An information-processing perspective. Cambridge, MA: Ballinger Publishing Company.Google Scholar
Egelhoff, W. G. (1991). Information-processing theory and the multinational enterprise. Journal of International Business Studies, 22(3), 341–368.CrossRefGoogle Scholar
Fama, E. F., & Jensen, M. C. (1983). Separation of ownership and control. Journal of Law and Economics, XXVI, 301–325.Google Scholar
Finkelstein, S., & D’Aveni, R. A. (1994). CEO duality as a double-edged sword: How boards of directors balance entrenchment avoidance and unity of command. Academy of Management Journal, 37, 1079–1108.CrossRefGoogle Scholar
Finkelstein, S., & Hambrick, D. C. (1996). Strategic leadership: Top executives and their effects on organizations. Los Angeles, CA: West Publishing Company.Google Scholar
Fong, E. A., Misangyi, V., & Tosi, H. L. (2010). The effects of CEO pay deviations on CEO withdrawal, firm size, and firm performance. Strategic Management Journal, 31(6), 629–651.Google Scholar
Fredrickson, J. W., Hambrick, D. C., & Baumrin, S. (1988). A model of CEO dismissal. Academy of Management Review, 13, 255–270.Google Scholar
Gabarro, J. J. (1987). The dynamics of taking charge. Boston, MA: Harvard Business School Press.Google Scholar
Galbraith, J.R. (1973). Designing complex organizations. Boston, MA: Addison-Wesley Longman Publishing Co.Google Scholar
Geringer, J. M., Beamish, P. W., & DaCosta, R. C. (1989). Diversification strategy and internationalization: Implications for MNE performance. Strategic Management Journal, 10(2), 109–119.Google Scholar
Ghemawat, P. (2001). Distance still matters. Harvard Business Review, 79(8), 137–147.Google Scholar
Ghoshal, S., & Nohria, N. (1989). Internal differentiation within multinational corporations. Strategic Management Journal, 10(4), 323–337.CrossRefGoogle Scholar
Giambatista, R. C., Rowe, W. G., & Riaz, S. (2005). Nothing succeeds like succession: A critical review of leader succession literature since 1994. The Leadership Quarterly, 16(6), 963–991.Google Scholar
Goerzen, A., & Beamish, P. W. (2003). Geographic scope and multinational enterprise performance. Strategic Management Journal, 24(13), 1289–1306.Google Scholar
Gomes, L., & Ramaswamy, K. (1999). An empirical examination of the form of the relationship between multinationality and performance. Journal of International Business Studies, 30(1), 173–174.Google Scholar
Graffin, S. D., Boivie, S., & Carpenter, M. A. (2013). Examining CEO succession and the role of heuristics in early stage CEO evaluation. Strategic Management Journal, 34(4), 383–403.Google Scholar
Grant, R. M., Jammine, A. P., & Thomas, H. (1988). Diversity, diversification, and profitability among British manufacturing companies, 1972–84. Academy of Management Journal, 31(4), 771–801.CrossRefGoogle Scholar
Greene, W. H. (2008). Econometric analysis (6th ed., Upper Saddle Rive, NJ: Prentice-Hall.Google Scholar
Hambrick, D. C., & D’Aveni, R. A. (1992). Top team deterioration as part of the downward spiral of large corporate bankruptcies. Management Science, 38(10), 1445–1466.Google Scholar
Hambrick, D. C., Finkelstein, S., & Mooney, A. C. (2005). Executive job demands: New insights for explaining strategic decisions and leader behaviors. Academy of Management Review, 30(3), 472–491.Google Scholar
Hambrick, D. C., & Mason, P. A. (1984). Upper echelons: The organization as a reflection of its top managers. Academy of Management Review, 9(2), 193–206.Google Scholar
Hannerz, U. (1996). Cosmopolitans and locals in world culture. In U. Hannerz (Ed.), Transnational connections: Culture, people, places. London: Routledge.Google Scholar
Harris, D., & Helfat, C. (1997). Specifiity of CEO human capital and compensation. Strategic Management Journal, 18, 895–920.Google Scholar
Henderson, A. D., & Fredrickson, J. W. (1996). Information-processing demands as a determinant of CEO compensation. Academy of Management Journal, 39(3), 575–606.CrossRefGoogle Scholar
Hitt, M. A., & Ireland, R. D. (1986). Relationships among corporate level distinctive competencies, diversification strategy, corporate structure, and performance. Journal of Management Studies, 23, 401–416.Google Scholar
Hitt, M. A., Hoskisson, R. E., & Kim, H. (1997). International diversification: Effects on innovation and firm performance in product-diversified firms. Academy of Management Journal, 40(4), 767–798.Google Scholar
Hofstede, G. (1980). Culture's consequences: International differences in work related values. Beverly Hill, CA: Sage.Google Scholar
Holmstrom, B. (1982). Moral hazard in teams. The Bell Journal of Economics, 13, 324–340.CrossRefGoogle Scholar
Hosmer, D. W. Jr., & Lemeshow, S. (1999). Applied survival analysis: Regression modeling of time to event data. New York, NY: John Wiley and Sons.Google Scholar
Huber, G. (1991). Organizational learning: The contributing processes and the literatures. Organization Science, 2(1), 88–115.Google Scholar
Jaccard, J., Turrisi, R., & Wan, C. K. (1990). Interaction effects in multiple regression. Newbury Park, CA: Sage.Google Scholar
Johanson, J., & Vahlne, J. E. (1977). The internationalization process of the firm – a model of knowledge development and increasing foreign market commitments. Journal of International Business Studies, 8, 23–32.Google Scholar
Johanson, J., & Vahlne, J. E. (1990). The mechanism of internationalization. International Marketing Review, 7(4), 11–24.Google Scholar
Jones, G. R., & Hill, C. W. L. (1988). Transaction cost analysis of strategy-structure choice. Strategic Management Journal, 9(2), 159–172.Google Scholar
Karaevli, A., & Zajac, E. J. (2012). When is an outsider CEO a good choice? MIT Sloan Management Review, 53(4), 15–17.Google Scholar
Kesner, I. F., & Dalton, D. R. (1994). Top management turnover and CEO succession: An investigation of the effects of turnover on performance. Journal of Management Studies, 31(5), 701–713.Google Scholar
Kesner, I. P., & Sebora, T. C. (1994). Executive succession: Past, present, and future. Journal of Management, 20(2), 327–372.Google Scholar
Khurana, R. (2001). Finding the right CEO: Why boards often make poor choices. Sloan Management Review, 43(1), 91–95.Google Scholar
Kim, W. C., & Mauborgne, R. (1996). Procedural justice and managers’ in-role and extra-role behavior: The case of the multinational. Management Science, 42(4), 499–515.Google Scholar
Kobrin, S. J. (1991). An empirical analysis of the determinants of global integration. Strategic Management Journal, 12(S1), 17–31.Google Scholar
Kostova, T., & Roth, K. (2002). Adoption of an organizational practice by subsidiaries of multinational corporations: Institutional and relational effects. The Academy of Management Journal, 45(1), 215–233.Google Scholar
Kwok, C. C. Y., & Reeb, D. M. (2000). Internationalization and firm risk: An upstream-downstream hypothesis. Journal of International Business Studies, 31(4), 611–629.Google Scholar
Levy, O., Beechler, S, Taylor, S., & Boyacigiller, N. A. (2007). What we talk about when we talk about global mindset: Managerial cognition in multinational corporations. Journal of International Business Studies, 38(2), 231–258.Google Scholar
Lu, J. W., & Beamish, P. W. (2004). International diversification and firm performance: The S-curve hypothesis. The Academy of Management Journal, 47(4), 598–609.Google Scholar
March, J. G., & Simon, H. A. (1958). Organizations. New York, NY: Wiley.Google Scholar
Mintzberg, H. (1973). The nature of managerial work. New York, NY: HarperCollins Publishers.Google Scholar
Ocasio, W. (1994). Political dynamics and the circulation of power: CEO succession in US industrial corporations, 1960–1990. Administrative Science Quarterly, 39(2), 285–312.Google Scholar
O’Shannassy, T. (2010). Board and CEO practice in modern strategy-making: How is strategy developed, who is the boss and in what circumstances? Journal of Management & Organization, 16, 280–298.Google Scholar
Palepu, K. (1985). Diversification strategy, profit performance and the entropy measure. Strategic Management Journal, 6(3), 239–255.Google Scholar
Pennings, J. M., Barkema, H., & Douma, S. (1994). Organizational learning and diversification. Academy of Management journal, 37(3), 608–640.CrossRefGoogle Scholar
Perlmutter, H. V. (1969). The tortuous evolution of the multinational corporation. Columbia Journal of World Business, 4, 9–18.Google Scholar
Porter, M. E. (1980). Competitive strategy: Techniques for analyzing industries and competitors. New York, NY: Free Press.Google Scholar
Prahalad, C. K. (1990). Globalization: the intellectual and managerial challenges. Human Resource Management, 29(1), 27–37.Google Scholar
Prahalad, C. K., & Bettis, R. A. (1986). The dominant logic: A new linkage between diversity and performance. Strategic Management Journal, 7(6), 485–501.Google Scholar
Prahalad, C. K., & Doz, Y. L. (1987). The multinational mission: Balancing local demands and global vision. New York, NY: The Free Press.Google Scholar
Prahalad, C. K., & Hamel, G. (1990). The core competence of the corporation. Harvard Business Review, 68(3), 79–91.Google Scholar
Roth, K., & O’Donnell, S. (1996). Foreign subsidiary compensation strategy: An agency theory perspective. Academy of Management Journal, 39(3), 678–703.Google Scholar
Rumelt, R. P. (1974). Strategy. Structure, and Economic Performance. Boston, MA: Harvard University Press.Google Scholar
Sanders, W. M. G., & Carpenter, M.A. (1998). Internationalization and firm governance: The roles of CEO compensation, top team composition, and board structure. The Academy of Management Journal, 41(2), 158–178.Google Scholar
Shen, W. (2003). The dynamics of the CEO-board relationship: An evolution perspective. Academy of Management Review, 28, 466–476.Google Scholar
Shen, W., & Cannella, A. A. (2002). Power dynamics within top management and their impacts on CEO dismissal followed by inside succession. Academy of Management Journal, 45, 1195–1206.Google Scholar
Strike, V. M., Gao, J., & Bansal, P. (2006). Being good while being bad: Social responsibility and the international diversification of US firms. Journal of International Business Studies, 37, 850–862.Google Scholar
Sullivan, D. (1994). Measuring the degree of internationalization of a firm. Journal of International Business Studies, 25, 325–342.Google Scholar
Tallman, S., & Li, J. (1996). Effects of international diversity and product diversity on the performance of multinational firms. Academy of Management Journal, 39(1), 179–196.Google Scholar
Thompson, J. D. (1967). Organizations in action. New York, NY: McGraw-Hill.Google Scholar
Tihanyi, L., & Thomas, W. B. (2005). Information-processing demands and the multinational enterprise: A comparison of foreign and domestic earnings estimates. Journal of Business Research, 58(3), 285–292.Google Scholar
Tushman, M. L., & Nadler, D. A. (1978). Information processing as an integrating concept in organizational design. Academy of Management Review, 3(3), 613–624.Google Scholar
Ungson, G. R., Braunstein, D. N., & Hall, P. D. (1981). Managerial information processing: A research review. Administrative Science Quarterly, 26(1), 116–134.Google Scholar
Verbeke, A., Li, L., & Goerzen, A. (2009). Toward more effective research on the multinationality-performance relationship. Management International Review, 49(2), 149–161.Google Scholar
Weisbach, M. S. (1988). Outside directors and CEO turnover. Journal of Financial Economics, 20, 431–460.Google Scholar
Wiersema, M. (2002). Holes at the top: why CEO firings backfire. Harvard Business Review, 80(12), 70–77.Google Scholar
Wiersema, M. F., & Bantel, K. A. (1993). Top management team turnover as an adaptation mechanism: The role of the environment. Strategic Management Journal, 14(7), 485–504.Google Scholar
Wiersema, M. F., & Zhang, Y. (2011). CEO dismissal: The role of investment analysts. Strategic Management Journal, 32(11), 1161–1182.Google Scholar
Wolf, J., & Egelhoff, W. G. (2002). A reexamination and extension of international strategy-structure theory. Strategic Management Journal, 23(2), 181–189.Google Scholar
Wrigley, L. (1970). Divisional autonomy and diversification. Boston, MA: Harvard University.Google Scholar
Yeoh, P. L. (2004). International learning: Antecedents and performance implications among newly internationalizing companies in an exporting context. International Marketing Review, 21(4/5), 511–535.Google Scholar
Yu, F. (2008). Analyst coverage and earnings management. Journal of Financial Economics, 88, 245–271.Google Scholar
Zajac, E. J. (1990). CEO selection, succession, compensation, and firm performance: A theoretical integration and empirical evidence. Strategic Management Journal, 11(3), 217–230.Google Scholar
Zajac, E. J., & Westphal, J. D. (1996). Who shall succeed? How CEO/board preferences and power affect the choice of new CEOs. Academy of Management Journal, 39(1), 64–90.Google Scholar
Zhang, Y. (2008). Information asymmetry and the dismissal of newly appointed CEOs: An empirical investigation. Strategic Management Journal, 29, 859–872.Google Scholar
Zhang, Y., & Rajagopalan, N. (2003). Explaining new CEO origin: Firm versus industry antecedents. Academy of Management Journal, 46, 327–338.Google Scholar
Zhang, Y., & Rajagopalan, N. (2004). When the known devil is better than an unknown God: An empirical study of the antecedents and consequences of relay CEO successions. Academy of Management Journal, 47, 483–500.Google Scholar