The Effects of Executive, Firm, and Board Characteristics on Executive Exit

• Date: 01 November 2016
• DOI: http://doi.org/10.1111/fire.12106
• Author: Mark Stater,Susan Elkinawy,John Becker‐Blease,Christopher Hoag
• Published date: 01 November 2016

The Financial Review 51 (2016) 527–557

The Effects of Executive, Firm, and Board

Characteristics on Executive Exit

John Becker-Blease

College of Business, OregonState University

Susan Elkinawy

Hilton Center for Business, Loyola Marymount University

Christopher Hoag∗

Trinity College

Mark Stater

Trinity College

Abstract

We estimate a hazard model of the probability of top corporate executives exiting their

firms overthe period 1996–2010. Our main findings are that: (1) female executives have greater

likelihoods of exit than males, (2) the likelihood of exit increases with the independence of

the board and decreases with the fraction of the board that is female and the average age of

board members, and (3) a higher percentage of independent directors on the board lowers the

probability of exit more for females than for males. Further, controlling for exit risk reduces

the well-documented compensation differential between men and women.

∗Corresponding author: Department of Economics, TrinityCollege, 300 Summit St., Hartford, CT 06106;

Phone: 860-297-4078; Fax: 860-297-2163; E-mail: Christopher.Hoag@trincoll.edu.

The authors would like to thank seminar participants at the WesternEconomic Association annual meeting

(Seattle, 2013) and Loyola Marymount University, as well as two anonymousreferees and the editor for

valuable insights. All remaining errors are our own.

C2016 The Eastern Finance Association 527

528 J. Becker-Blease et al./The Financial Review 51 (2016) 527–557

Keywords: corporate executives, job turnover, board of directors, firm performance, hazard

models

JEL Classifications: G30, G34, J16, J44

1. Introduction

Significant change in the composition of the executive suite has occurred in

recent decades, particularly in the length of time executives remain employed in

their firms as well as in the gender composition of the profession. Cappelli and

Hamori (2005) find that among Fortune 100 firms, the average tenure of executives

dropped by more than five years from 1980 to 2001. Also, in 1980 there were no

female executives in these firms, but over the subsequent 20-year period, women

not only entered the executive ranks, but they also reached the highest ranks faster

than men did. These trends suggest that the workforce has become increasingly

dynamic and that corporate stakeholders recognize value in diversity. However, the

relative scarcity of women in the top ranks attracts media attention when one leaves

her position unexpectedly. The forced departure of Carly Fiorina, Hewlett-Packard’s

chief executive,in 2005 made national headlines. More recently, the sudden departure

of Jill Abramson as executive editor of the New York Times was discussed in a Wall

Street Journal article, as she was the second top female to leave the firmsuddenly in

fewer than three years (Trachtenberg and Marr, 2014).

In this paper, we use a data set compiled from multiple sources to examine the

factors that determine the tenure of top executive officers with their firms as well

as how those factors differ by gender. While previous studies have compared the

reasons for exit between male and female executives (Becker-Blease, Elkinawy and

Stater, 2010), we focus on how long executives remain employed. Executive tenure

is an issue for corporate governance due to the potential relation between tenure and

shareholder wealth, and for public policy as the longevity of executives is related to

wealth acquisition and influence. While long tenure can promote stability and allow

a corporation to strengthen its market position as the executive gains experience,

excessive tenure can also lead to entrenchment and to overly risk-averse behavior

that is detrimental to firm survival and performance. Indeed, McClelland, Barker and

Oh (2012) find that chief executive officer (CEO) paradigms become increasingly

obsolete as tenure increases, albeit only in dynamic industries where the operating

environment undergoes frequent change. Gender differences in executive tenure may

also reflect imperfections in the labor market.

While the primary motivation for our study is to understand tenure, approaching

the problem with a survival analysis model allows us to readily address censoring

problems that are posed by the data. Nonetheless, as there is a tight theoretical

connection between the risk of exit from a state or condition in any given time

period and the total amount of time spent there, our approach of studying the hazard