Managerial Turnover Policies with Switching Costs

The connection between managerial turnover and switching costs is studied within a model under conditions of declining performance. Utilizing the online decision theory, this paper characterizes optimal managerial turnover policies as a function of the time series properties of performance measure and switching costs. When the owner of an enterprise, e.g. stockholder, is risk aversion, we provide some managerial turnover policies, which are evaluated to be effective by competitive ratio. When the owner of an enterprise is risk seeking, a risk managerial turnover policy is designed based on the owner´ risk tolerance and forecast. It is shown that the achieved optimal dismissing time is negatively correlated with switching costs, and is positively correlated with discount factors. Result analyses are given to help the owner of an enterprise to perfect the managerial turnover mechanism.