Chief executive Jez Moxey believes Wolves would "almost certainly" have been relegated from the Premier League if manager Mick McCarthy had remained in charge.
The Molineux club sacked McCarthy on Monday morning after five-and-a-half years at the helm.
Wolves have won just one of their last 11 top-flight games, leaving the third-bottom side facing a battle to avoid the drop.
McCarthy, who led the club to the Championship title in 2009, has been on the receiving end of sharp criticism from frustrated Molineux fans in recent weeks.
And the patience of his bosses also snapped after Sunday's embarrassing 5-1 home defeat by Black Country rivals West Brom.
Moxey told Sky Sports News: "We did a lot of soul-searching overnight and the board convened by telephone to discuss the current predicament.
"We felt with a two-week break before our next game at Newcastle, and the fact we've got 14 points from our last 22 matches, there was enough time with 13 games to go for us to try and retrieve the situation. We felt we had to make the change.
"This has been done with a hugely heavy heart - Mick McCarthy has done a fantastic job for the past five-and-a-half years in an exemplary manner.
"He got us promoted as champions, the first time we had won anything for over 20 years, retained our Premier League status for two years running and we're still in the Premier League.
"But we felt the team was only going one way and we needed to act. We've got time to get in a new manager and arrest the decline.
"We felt if we didn't do something we would almost certainly be relegated."
Former Liverpool boss Rafael Benitez has already ruled himself out of the running to replace McCarthy, while ex-Charlton and West Ham manager Alan Curbishley admits he would be interested.
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