The Cost of Entrenchment: Why CEOs Are Rarely Fired

Wharton finance professor Luke Taylor has heard the conventional wisdom that boards of directors often fail to do their jobs when it comes to firing underperforming CEOs. And while data shows that only 2% of Fortune 500 CEOs on average are fired each year, Taylor notes that there is no benchmark for judging whether that figure is “a lot or not enough.” To address that question, Taylor modeled the decision to fire a CEO and estimated the gap between observed and optimal CEO firing rates. The results of his research are in a new paper titled, “Why Are CEOs Rarely Fired? Evidence from Structural Estimation.”

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