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Abstract Research Summary CEO dismissal is a high‐stakes governance decision, yet its implications for corporate reputations remain underexplored. We develop theory explaining how dismissals damage corporate reputation through perceptual processes that arise from features of and reactions to the practice itself, distinct from effects attributable to dismissal's (much studied) economic and strategic consequences. Drawing on expectancy violation theory, we argue that dismissals become salient and generate negative reactions because they deviate from the preferred norm of planned succession and also highlight firm‐level problems, and these factors prompt reputational reassessment. The findings support this prediction: dismissals significantly damage corporate reputation even after controlling for financial performance. This damage intensifies when dismissed CEOs have won awards, received extensive media coverage, or led high‐performing firms. Managerial Summary Firing a CEO is one of the most consequential decisions that boards make, yet we know little about how this action affects a firm's reputation. We find that CEO dismissals meaningfully damage corporate reputation, even after accounting for the firm's financial situation. This damage appears to occur for two reasons: dismissals deviate from the preferred approach of a planned leadership transition, and they draw attention to underlying problems at the firm. The reputational harm intensifies when the dismissed CEO had won industry awards, received extensive media coverage, or led a firm that was performing well. These findings suggest that boards should consider the potential reputational costs of dismissing a CEO alongside the anticipated strategic benefits.
Lim et al. (Sun,) studied this question.