Influence of Company Effectiveness Expectations on CEO Dismissal or Board Structure Changes

Stock market is driven by the past and expected data, as well as board and shareholders’ decisions. CEOs and Chairmen of poorly performing companies may stay in position for a long time due to positive expectations about future performance of companies. Moreover, expectations, measured as analyst’s forecasts of the company`s performance, may act as a third-party source for top managers` performance evaluation. On top of that, investors use analyst reports to evaluate the work of Board of Directors. Using samples of Russian and United Kingdom listed companies, we argue that performance expectations are also important for the decision of dismissal of top managers, as well as past performance data or quality of corporate governance of the company. We find that lower analyst recommendation or price target decline lead to the higher probability of the CEO turnover, but has mixed impact on Chairman of the Board dismissal decisions.