CORPORATE PERFORMANCE, POLITICAL CONNECTION, FAMILY FIRMS AND CEO TURNOVER IN INDONESIA

Abstract

This paper examines associations between company performances, political connection of CEO, political connection of head of commissioner and family firms to CEO turnover. This study uses 1,156 samples of listed firms in Indonesia Stock Exchange from all industries during the period of 2011-2017, except those in financial sector. Ordinary Least Square (OLS) regression is used, and ROA as well as family firms are found to decrease the likelihood of CEO turnover, while Tobin’s Q is found to have no association with CEO turnover. It shows that only short-term performance and ownership are taken into account to make decisions regarding CEO turnover, while long-term performance is not affecting the decision significantly. In addition, both CEO and head of commissioner’s political connection are found to increase the likelihood of CEO turnover regardless of their differences in roles and tasks. This research findings implies that one of the ways companies adapt is by choosing to appoint CEO with political connection that bring the most benefit for firms at a particular time in a complex political environment such as Indonesia, hence the increased turnover rate and political connection of commissioner is proved to increase the effectiveness of their monitoring role. Meanwhile, family firms has lower rate of CEO turnover. This research helps to explore the implication of performance, upper-management political connection, and family firm ownership influencing the event of CEO turnover in Indonesia