How a CEO’s Use of Language toward Shareholders and Stakeholders Affects CEO Dismissal

Top managers routinely use language in public to signal messages to the firm’s constituencies in the environment, but little is known about how temporal variations in the manager’s use of language affect outcomes. Drawing on signaling theory and a cognitive perspective about corporate governance, we examine how temporal consistency in the CEO’s use of language in public documents affects the board’s decision to dismiss the CEO. We predict that the effect of temporal consistency in language varies depending on whether the language signals conformity to a prevailing institutional logic–shareholder value principle– or an alternative institutional logic–stakeholder theory. Using CEOs’ letters to shareholders from large firms in the United States, we found that CEO dismissal risk is lower when CEOs consistently use shareholder-value-friendly language over time and the risk is greater when CEOs consistently use stakeholder-oriented language over time.