Why Do Boards Fire CEOS and Cfos after Poor Market Performance? An Organizational Impression Management Perspective

This study draws on the organizational impression management (OIM) literature to show that firms involved in hoarding negative accounting news and facing a stock price crash (SPC), our proxy for poor market performance, are positively associated with CEO and CFO turnover in the subsequent year (t+1). This is consistent with the idea that by firing CEOs/CFOs, boards convey a greater sense of authority and control over organizational performance after an organizational setback. The results are stronger when we consider CEO and CFO turnover jointly, thus suggesting boards attempt to regain authority and control by decisively firing both the leaders who are mainly responsible for financial reporting. Further, firms with boards that demonstrate authority and control and brighter firm prospects by firing CEOs/CFOs after SPC subsequently show lower bad news hoarding activities and improved firm performance, especially when both CEOs and CFOs are jointly fired