Outside Directors And Ceo Turnover Pdf

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Aivazian, V. Working Paper, University of Toronto. Alchian, A. Production, information costs and economic organization. Ashraf Ali, A.

Determinants of CEO and Board Turnover

To browse Academia. Skip to main content. By using our site, you agree to our collection of information through the use of cookies. To learn more, view our Privacy Policy. Log In Sign Up. Download Free PDF. Bruno Parigi. Giorgio Brunello. Download PDF. A short summary of this paper.

CEO turnover in insider-dominated boards: The Italian case. Concentrated ownership, family control, limited institutional in- vestors activism, and lack of main bank monitoring make Italy a corporate governance envi- ronment dominated by insiders. When the CEO is an owner, however, we have all the negative aspects of insider-dominated boards. All rights reserved. Introduction CEO turnover is an important ingredient of corporate governance. E-mail address: clara.

Brunello et al. The object of this study is an investigation of CEO turnover when insiders run the boards. We perform an econometric analysis of CEO turnover in relationship to per- formance, ownership concentration and CEO ownership using a sample of compa- nies listed on the Italian Stock Exchanges over the 9-year period — The main implication for the corporate governance literature is that when insiders dominate boards of directors, potentially making the boards tools in the hands of managers we do not have necessarily a failure of corporate governance.

Financial markets evolve to substitute governance mechanisms that put a check on agency costs. Interestingly, the turnover performance relationship in our study is stronger than that found for the US by Denis et al.

Thus, insider boards are not necessarily bad per se, and do not necessarily lead to higher agency costs. On the contrary, having insiders on the board when the CEO is not a controlling shareholder may actually be a positive complement to the strategy of having large blockholders. Unfortunately the quality of our data does not allow us to pursue this line of research in this paper.

The rest of the paper is organized as follows. Section 2 discusses the institutional aspects of Italian capitalism and the main features of boards of directors in Italy. Section 4 describes the empirical strategy. The results of the regressions are presented in Section 5.

Institutional background 2. Corporate governance in Italy CEO turnover is better understood in the context of the Italian system of corpo- rate governance. This system is generally regarded as a poorly functioning one because of the weak legal protection of small shareholders see, for example, La Porta et al. In Italy, companies typically belong to groups i.

The holding company is often con- trolled through cross shareholding with allied groups. For a number of reasons large independent shareholders and institutional inves- tors play only a minor role in monitoring the controlling shareholder in this context. In general, institutional investors are not active investors Bianchi and Enriques, In the relationship-based systems, banks monitor insiders and re- place the missing external markets for corporate control.

Insider-dominated boards Concentrated ownership, the absence of large independent shareholders, and limi- ted bank monitoring have a number of implications both for the composition and for the functions of the boards of directors. A survey conducted in Crisci and Tarizzo, on the boards of directors of Italian companies provides a clear picture.

The same survey reports that the choice of a new director is based more on personal contacts than on the search for the best candidate. Board members in Italy are generally appointed by the shareholders meeting for a three-year renewable term, and can be removed by the shareholders meeting in any moment Art. Typically there is no mandatory retirement age. The board of directors appoints the CEO. The chairman of the board is elected either by the board or by the shareholders Art.

Third, the large controlling shareholders, or their representatives, are often ac- tively involved in company management Barca, ; La Porta et al. This pattern is hardly an exception worldwide where, according to La Porta et al. As La Porta et al. As a result, the task of the board is also strategic planning and its imple- mentation, besides the monitoring of executives.

Although the law assigns independent monitoring to this committee, it is appointed by the shareholders meeting and thus by the same majority of votes that appoints the direc- tors it is supposed to control. Furthermore, until the reform of Italian corporate law, the possibility for minority shareholders to sue the directors was subject to the approval of the shareholders meeting Art.

This feature is also shared by the boards in our study although, as will be made clear later, lack of suitable information prevents us from capturing it with an explanatory variable. On the one hand, as the empirical evidence on the US suggests, turnover and turnover—perfor- mance sensitivity should be lower in insider-dominated boards and in boards that include the company founder.

On the other hand, the strong ownership concentration in Italy provides the majority shareholders with all the incentives to actively monitor outside managers. This, in turn, would lead us to expect both high turnover and high turnover—performance sensitivity. When the CEO is not an owner we expect the large shareholders in the boards to exercise a close monitoring on the outside CEOs and replace those who under-perform.

Before specifying our empirical stra- tegy in this institutional setting we present our data. The data 3. Data on stock prices and dividends are from the leading Italian business daily newspaper Sole 24 Ore — Finally, data on the changes of nominal capital e.

New entries during the period are ignored. The empirical con- sequences of the endogenous selection of stayers in the sample are discussed in the next section.

Unfortunately, published sources do not allow us to identify the causes of turnover, e. Thus turnover is the percentage of CEOs in a given board that left the board during the period. Since large companies may have more than one CEO, this percentage can take values greater than 0 and smaller than 1. This is done for two reasons. First, in the Italian context data on assets are less reliable than data on sales.

However, since the mea- surement errors are not necessarily correlated, their combined use adds explanatory power. Since we have only information on CEOs at survey time, the interval between the measured performance and the instance of turnover will be longer than one year in some cases and shorter in others. Additional company information includes SIZE the logarithm of real sales.

Unfortunately we only have information on common shares. In companies where no shareholder has the absolute majority of votes, a share- holder syndicate often links the main blockholders. A shareholder syndicate is a co- alition of shareholders aimed at exercising some of their rights in a predetermined fashion Art.

The most common types of syndicates are voting trusts, consultation agreements, and agreements limiting the transfers of blocks of shares. Because tenure is only available from on- wards, the left censoring in the data imparts an obvious downward bias on this vari- able. The average board size is slightly more than 10 members, similar to the size in other one-tier board systems such as the US Denis et al.

The average number of CEOs in the board is 1. Interlocking membership is a common feature in companies that belong to a group or are controlled through a syndicate, and might lead to collusive behavior between directors Bianco and Pag- noni, While directors hold an average of 1. Previous studies show that the empirical evidence on the relationship be- tween executive ownership and turnover is ambiguous. They also document that turnover is lower when the executive is a member of the founding family see also Rosenstein and Wyatt, At the same time, companies with a syndicate have more outside equity and are more exposed to the instability of coali- tion control, thus they are more contestable than companies with just one controlling shareholder, which, in turn, may increase turnover.

If large shareholders play an important monitoring role, turnover and the turnover— performance sensitivity should be stronger the larger the controlling shareholder.

Similar results are found in an- other study on Germany by Franks and Mayer who, however, point out that ownership structure matters in the dynamics of control: In transfers of ownership in particular, large shareholders fare much better than minorities. Previous studies on the US point to a monitoring role by large non-controlling blockholders.

Warner et al. Stronger results are reported by Denis et al. However, if the monitoring role of the second shareholder arises mainly in countries with sophisticated legal systems, as Shleifer and Vishny point out, we should expect the second shareholder to play only a marginal role in Italy.

Similarly Warner et al. In a study on executive compensation in Italy Brunello et al. Since we cannot identify and exclude episodes of CEO turnover due to retirement from our data, we attempt to eliminate many instances of retirement by focusing only on CEOs aged 70 or younger.

Results 5. Robust standard errors within parentheses. For a description of the other variables see Table 1. On the one hand, high ownership concentration induces high monitoring, high turnover, and high turnover—performance sensitivity. On the other hand, it induces entrenchment, low turnover, and low turnover—perfor- mance sensitivity. The role of CEO ownership as a determinant of turnover is further analyzed later in the paper. In particular, turnover is higher the greater the number of years spent by the CEOs in the position since If we had data on tenure that are not left censored, we could have tested this hypothesis by adding a dummy equal to 1 to the regressions when the CEO is in the last year of his three-year contract.

Since tenure in our data is only measured from this option is precluded.

Global Finance Review(TRANSFERRED)

The purpose of this paper is twofold. First, to document changes in top management and board of directors in Danish firms during — Second, to examine whether these changes are related to the performance of firms during the preceding years. Our study differs from earlier investigations in that we not only consider removal of CEOs but also turnover of board chairmen and board members. We find that turnovers of CEOs, board chairs and members have a number of common determinants like firm size and age of the firm. Risks of removals increase with lower rates of solvency but are unaffected by profitability changes.


This paper examines the relation between the monitoring of CEOs by inside and outside directors and CEO resignations. CEO resignations are predicted using.


CEO turnover and firm performance, evidence from Thailand

Logit model is employed to analyze the relationship between CEO turnover and firm performance. The paper finds that both ownership and board structure have effects on the relationship between CEO turnover and firm performance. The probability of CEO turnover is lower when the firm is controlled by family, the CEO is part of the controlling family, and board size is larger. Contrary to previous studies, sensitivity of CEO turnover to firm performance is higher with the presence of CEO duality and lower degree of board independence. When a CEO continues to work beyond retirement age, the probability of turnover is not associated with firm performance.

Rodriguez Milanes, C. Masters thesis, Concordia University. This paper explores whether firms that dismiss their Chief Executive Officers CEOs , due to poor corporate performance, exhibit better performance after the CEO turnover, or whether the CEO dismissal merely serves a scapegoating function. We examine whether companies that were in the eye of the public due to disappointing results recover after dismissing their CEO. We match firms in the same industry, by size, and Altman Z-Score and compare our turnover sample with this matched group of firms that did not dismiss the CEO.

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Weisbach and Jim Dana and Franklin M. CEO resignations are predicted using stock returns and earnings changes as measures of prior performance. There is a stronger association between prior performance and the prhability of a resignation for companies with outsider-dominated boards than for companies with insider-dominated boards.

Sam Sunghan Lee, Steven R. Matsunaga, Chul W. The Accounting Review 1 November ; 87 6 : — We investigate whether management forecast accuracy provides a signal regarding CEOs' ability to anticipate and respond to future events by examining the relation between management forecast errors and CEO turnover. We find that the probability of CEO turnover is positively related to the magnitude of absolute forecast errors when firm performance is poor and that this positive relation holds for both positive and negative forecast errors.

North-Holland OUTSIDE DIRECTORS AND CEO TURNOVER Michael !

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Some criticize boards for leaving the evolution of their composition to chance, allowing director retirements to dictate the pace of change. Support for annual director elections and for increased transparency around director nominations suggests that some shareholders would like to see more turnover. Is there evidence that companies and shareholders actually benefit when boards add […].

Why CEOs fall: The causes and consequences of turnover at the top

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