Does Job Security Affect Board Monitoring? Evidence from Forced CEO Turnover

Using U.S. states' staggered enactment of majority voting legislation (MVL) as plausibly negative exogenous shocks to director job security, we find an increase in the unconditional likelihood of forced CEO turnover and the sensitivity of forced CEO turnover to firm performance following its introduction. The impact is moderated where CEOs have quality characteristics and strengthened when directors face more significant career concerns. We also document better post-turnover performance for treated relative to control firms, and the mechanism is through directors of treated firms being less busy, attending more meetings, and facing lower turnover. Our findings suggest that decreased job security improves board monitoring efficiency, leading to value-enhancing CEO turnover decisions