The Impact of Forced Versus Voluntary CEO Dismissals on Firm Innovation [Evidence from S&P 1500 Firms (2000-2018)]

Abstract

This study examines the effects of CEO dismissals, with a particular focus on forced versus voluntary dismissals, on firm innovation. Using managerial myopia as the underlying mechanism, it claims that forced CEO transitions, which are often unplanned and reactive, intensify short-term performance pressure and disrupt strategic continuity, ultimately reducing long-term innovation efforts. In contrast, voluntary exits are expected to preserve alignment with corporate goals, as they commonly involve succession planning, and therefore offer a more stable environment for innovation. Using panel data from S&P 1500 firms over the period 2000 to 2018, the study applies a staggered difference-in-differences (DiD) estimator and two-way fixed effects regressions to identify the causal effects of CEO dismissals on firm-level innovation. R&D intensity, patent counts, and forward citations are metrics used to quantify innovation. The findings indicate that relative to voluntary transitions, forced dismissals have a significantly greater negative impact on patent output. Patent quality remains unaffected in the short term, and R&D intensity seems resilient to sudden disruptions. These findings underscore the importance of differentiating between types of CEO turnover and have practical implications for boards, investors, and policymakers who influence leadership transitions in innovation-driven firms.