Performance, Expectations, and Managerial Dismissal: Evidence From the National Football League

Researchers in many disciplines have shown that lower overall firm performance motivates the termination of top managers. Some have also suggested that managerial dismissal stems particularly from shortfalls of performance relative to expectations, whether in relation to corporate executives or the managers of professional sports teams. But relatively fewhave investigated the roleof expectations empirically, owing to difficulties in measuring them. In this article, we address this question theoretically by framing the interaction of performance, expectations, and the use (and potential dis-missal) of managers as a labor demand problem, using applied microeconomic tools to demonstrate how variation in expectations and performance can alter how a National Football League (NFL) organization employs player and coaching talent. Empirically, we take advantage of an institutional change—the NFL’s adoption of a salary cap and free agency in the early 1990s—to isolate an exogenous change in performance expecta-tions.While the salary cap constrained the amount clubs could spend annually on player talent, it placed no constraint on expenditures for managerial (coaching) talent. This mayhave led clubs to allocatemore resources toward coaching talent and consequently place higher expectations on head coaches, resulting in a greater probability of dismissal in the postcap period. Using data on NFL head coaches from 1979 to 2006 and probit models of turnover, we find that the probability of coach dismissal increased in th