Financial theory suggests that a firm with strong corporate governance (e.g., an effective board of directors), keeps a CEO exactly as long as is optimal for the firm. When the firm’s board and other corporate governance mechanisms are ineffective, however, a CEO can stay on longer than is optimal, to the detriment of shareholder value (Brochet et al., 2021).

Theoretical studies (e.g., Casamatta and Guembel, 2010) indicate that a CEO’s decisions affect a firm’s future performance, potentially beyond the CEO’s tenure. However, the empirical evidence for this finding is almost nonexistent. If a long CEO tenure is indeed associated with … Read more