Management turnover in subsidiaries of conglomerates versus stand-alone firms

Abstract

We compare turnover of subsidiary managers inside conglomerate firms to turnover of CEOs of comparable stand-alone firms. We find that, compared to turnover of CEOs, subsidiary manager turnover is significantly more sensitive to changes in performance and significantly more likely following poor performance. For subsidiary managers, the relation between turnover and performance is significantly stronger when the subsidiary operates in an industry that is related to the parent's primary industry. Results suggest that boards of directors are relatively ineffective disciplinarians of CEOs and despite their other apparent failings, conglomerate firms have relatively strict disciplining mechanisms for subsidiary managers.