CEO Diversity, Political Influences, and CEO Turnover in Unstable Environments: The Romanian Case

Ingrid-Mihaela Dragotă,Andreea Curmei-Semenescu,Raluca Moscu

doi:10.3390/jrfm13030059

Ingrid-Mihaela Dragotă, Andreea Curmei-Semenescu + Show 1 more

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https://doi.org/10.3390/jrfm13030059

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Abstract

This work expands the literature on a less studied topic, the Chief Executive Officer (CEO) turnover in post-communist economies, analyzed during an unstable and ambiguous economic and financial environment. For the period 2005–2010, the results indicate the political inference in CEO turnover decision for the Romanian listed companies. In this period, with great turmoil in the economy determined by the financial crisis of 2008, we also find that CEO gender helps to explain the probability of changing the CEO. Moreover, this paper empirically tests if the financial and corporate governance determinants that are validated in the existing literature work for the Romanian listed companies. We reinforce that CEO turnover decision is negatively related to accounting-based performance. We find evidence of the “voting with their feet” behavior of institutional investors, and of the lack of Board of Directors monitoring. The CEO–Chairman duality and the controlling power of the largest shareholder act as entrenchment mechanisms.

Highlights

A substantial literature base devoted to the causes and consequences of Chief Executive Officer (CEO) succession has been developed in the last decades
With regards to the relation between CEO turnover and different corporate governance characteristics, first we found that the CEO–Chairman duality is inversely related to the likelihood of forced CEO turnover (Hazarika et al 2012; Helwege et al 2012; Hu and Leung 2012)
To the best of our knowledge, this is the first paper to focus on CEO turnover in Romania using a detailed and comprehensive analysis and considering financial, social, political, and corporate governance determinants, applied to an intricate period of time, with both exceptional development and economic recession

Summary

Introduction

A substantial literature base devoted to the causes and consequences of CEO succession has been developed in the last decades. The decision of managerial succession stands at the crossroads of corporate finance, management, corporate governance, psychology, and sociology (Campbell et al 2011). It can be considered a strategic decision, which helps to preserve the shareholders’/stakeholders’ interest whenever major objectives of the firm are not achieved, or whenever resources of the company are not used according to a mutually agreed plan. The above-mentioned studies are not entirely applicable to the Romanian case for several reasons These studies focus mainly oxn the enterprise restructuring process and its consequences from a corporate governance perspective. These countries have become, to a certain extent, different in terms of the degree of economic and stock market development.

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