The Harvard Law School Forum on Corporate Governance https://corpgov.law.harvard.edu The leading online blog in the fields of corporate governance and financial regulation. Fri, 17 Jul 2026 11:32:25 +0000 en-US hourly 1 https://wordpress.org/?v=6.5.8 https://corpgov.law.harvard.edu/wp-content/uploads/2024/02/cropped-photography-4-e1706898544564-1-32x32.png Why Are CEOs Rarely Fired? – The Harvard Law School Forum on Corporate Governance https://corpgov.law.harvard.edu 32 32 Why Are CEOs Rarely Fired? https://corpgov.law.harvard.edu/2010/07/21/why-are-ceos-rarely-fired/?utm_source=rss&utm_medium=rss&utm_campaign=why-are-ceos-rarely-fired https://corpgov.law.harvard.edu/2010/07/21/why-are-ceos-rarely-fired/#comments Wed, 21 Jul 2010 13:17:38 +0000 http://blogs.law.harvard.edu/corpgov/?p=11189?d=20150106103136EST Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Wednesday, July 21, 2010
Editor's Note:

This post comes to us from Lucian Taylor of the Finance Department at the University of Pennsylvania.

In the paper, Why Are CEOs Rarely Fired? Evidence from Structural Estimation, which is forthcoming in the Journal of Finance, I evaluate the forced CEO turnover rate and quantify effects on shareholder value by estimating a dynamic model. The model features costly turnover and learning about CEO ability. To fit the observed forced turnover rate, the model needs the average board of directors to behave as if replacing the CEO costs shareholders at least $200 million.

I find three main results. First, the empirical forced turnover rate is low, in the sense that the model needs large turnover costs to fit the data. Second, these costs mainly reflect CEO entrenchment rather than a real cost to shareholders. According to the model, eliminating this entrenchment would raise shareholder value by 3%, assuming we could hold all else constant.

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