CEO Turnover Research Articles

Firm Performance, Corporate Governance Mechanisms and CEO Turnover: Evidence from Nigeria

This paper examines the influence of firm performance and internal governance mechanisms on CEO turnover decision. The sample of the study is all Nigerian non-financial firms listed on the Nigerian Stock Exchange (NSE) from year 2011 to 2015 consisting of 72 cases of CEO turnover. Using logistic regression analysis, this study provides evidences that poor accounting-based performance (ROA) and low engagement of female directors in corporate boards do increase the probability of CEO turnover. Furthermore, firms dominated with foreign ownership and those with independent board nominating committee are swifter in removing their CEOs. However, this study fails to support the argument that firms with large board size and those that are dominated by managerial ownership, help to enhance the monitoring practices, which ought to sanction underperformed CEOs with dismissal. Consequently, this study recommends that the Nigerian government should enact a legislation on gender quota to ensure that more female directors are appointed to the boards and as well encourage more foreign ownership in the Nigerian corporate landscape by attracting foreign investment into the economy via favourable policies. This paper contributes to the literature concerning CEO succession in developing markets with poor corporate governance structure such as Nigeria.

Bankers on the Board and CEO Turnover

AbstractThe governance literature finds that independent directors from lending banks (commercial bank directors or CBDs) bring both financial expertise and conflict of interest between shareholders and debt holders. We examine how the presence of CBDs affects the implicit incentive of CEO turnover. Using BoardEx and DealScan data, we hypothesize and find that CBDs make the CEO turnover more sensitive to both performance and risk. Post‐CEO turnover analysis reveals that firm performance improves and risk decreases in the presence of CBDs.

Dancing with activists

An important milestone often reached in the life of an activist engagement is entering into a “settlement” agreement between the activist and the target's board. Using a comprehensive hand-collected data set, we analyze the drivers, nature, and consequences of such settlement agreements. Settlements are more likely when the activist has a credible threat to win board seats in a proxy fight and when incumbents’ reputation concerns are stronger. Consistent with incomplete contracting, face-saving benefits, and private information considerations, settlements commonly do not contract directly on operational or leadership changes sought by the activist but rather on board composition changes. Settlements are accompanied by positive stock price reactions, and they are subsequently followed by changes of the type sought by activists, including CEO turnover, higher shareholder payouts, and improved operating performance. We find no evidence to support concerns that settlements enable activists to extract rents at the expense of other investors. Our analysis provides a look into the “black box” of activist engagements and contributes to understanding how activism brings about changes in target companies.

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

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

Pengaruh Good Corporate Governance terhadap Manajemen Laba oleh CEO Baru pada Perusahaan Manufaktur

CEO turnover in a company is a certain activity. At the turn of the CEO many possibilities can occur, one of which is earnings management practices carried out by the new CEO. Earnings management practices can be avoided with good corporate governance. Manufacturing companies were the sectors of the IDX in the 2013-2017 period selected as the study population. Samples obtained as many as 36 samples will then be processed using multiple linear regression. This sample was obtained through selection criteria, namely by purposive sampling technique. The results obtained are good corporate governance has a negative effect on earnings management

The Regulatory Observer Effect: Large-Sample Evidence from SEC Investigations

Drawing on financial reporting, institutional, and social psychology theories, we consider whether awareness of SEC scrutiny affects the extent to which managers exercise financial reporting discretion. Because there is a higher probability that the SEC will detect misconduct and impose penalties on firms under investigation, we predict that managers will change their behavior during periods of increased scrutiny. We test our predictions using novel data on all Division of Enforcement (DoE) investigations completed during the 2000-2016 period. The evidence we present offers three insights. First, our results suggest that managers perceive the SEC will be more concerned, and potentially more punitive, with firms that employ discretion through accruals rather than real activities. Second, the actions taken by managers appear to reflect improvements in accounting misstatement risk, reductions in accounting irregularities, and increases in conservatism. Third, firms investigated by the SEC, but not ultimately subject to an enforcement action, exhibit decreased R&D and capital expenditures and increased likelihoods of CEO turnover, comment letter receipt, earnings restatements, and class-action lawsuits. The implications of our study should be of interest to academics, investors, and regulators in understanding how heightened regulatory monitoring over financial reporting can affect both accounting practices and operating decisions.

Does CEO founder status protect against dismissal?

Background: The article adds to the limited literature on CEO turnover in emerging market coun­tries and extends the existing research to a different institutional setting with a particular focus on listed companies in an increasingly important Polish business environment. It deals with the problem of CEO turnover in Polish listed companies.
 Research purpose: Its main purpose is to scrutinize the impact of company performance and managerial ownership on CEO turnover. It focuses on finding the differences in the CEO turnover antecedences of founder CEO and professional CEO dismissal.
 Methods: These relationships were tested using logistic regression. The sample consists of Pol­ish public companies listed on the Main Market of the Warsaw Stock Exchange, encompassing 11 years from 2008 to 2018. The final sample embraces an unbalanced panel sample of 489 com­panies and 3,763 company-year observations.
 Conclusions: The analysis throughout the sample showed that the relationship between firm per­formance and CEO turnover is negative. Thus, deterioration of firm performance increases the frequency of changes in CEO. However, after conducting an in-depth study, it was found that this relationship is statistically significant only when professional managers manage the companies. The relationship between managerial ownership and turnover was also significant and negative in the whole sample. Still, there were also differences between changes in the CEO position, depend­ing on whether it was the company’s founder or a professional manager. In the case of founder CEOs, this relationship was even significant and positive, as opposed to professional managers. This was the same as in the whole sample.

The Effects of Accounting Expertise of Board Committees on the Short- and Long-term Consequences of Financial Restatements

Using financial restatements as the contextual setting, we examine whether the accounting expertise of board committees affects the consequences of financial reporting quality. We analyze both short-term consequences—stock market reactions surrounding restatement announcements, and long-term consequences—the incidence of SEC Accounting and Auditing Enforcement Actions (AAERs), and CEO and CFO turnover after restatements. Our results show that the presence of audit committee members with accounting expertise moderates the consequences of restatements, resulting in less negative stock market reactions and a lower probability of CEO turnover. In contrast, the audit committee’s non-accounting financial expertise increases the likelihood of AAERs. For the compensation committee, we find that accounting expertise reduces the probability of CEO turnover, while non-accounting financial expertise exacerbates the negative stock returns around restatement announcements and increases the probability of AAER. In the post Sarbanes Oxley Act (SOX) period, restatements have resulted in less severe consequences while companies have increased their propensity to hire accounting experts. on the board. Correspondingly, we document that the moderating effects of accounting expertise become less significant, in part because the moderating effects are offset by the changed investor expectations. Overall, our results suggest that accounting expertise of board committees helps mitigate the negative consequences of restatements.

Shareholder Lawsuits and CEO Turnover Decisions

We study the effect of shareholder litigation rights on CEO turnover policies using U.S. states’ staggered adoption of Universal Demand laws, which restrict shareholder lawsuits that allege a breach of fiduciary duty by directors or managers. We document that reduced shareholder litigation rights are associated with greater CEO turnover-performance sensitivity, and that this effect is more prominent in firms with existing blockholders and higher ex-ante litigation risk. The empirical evidence suggests a substitute relationship between active monitoring through CEO turnover policies and disciplinary shareholder litigation. Our study contributes to the debate on the role of shareholder litigation in corporate governance.

CEO Overconfidence and the Choice of Debt Issuance

This paper examines how CEO overconfidence affects firms’ choice of debt issuance. We find that firms with overconfident CEOs tend to issue more private debt (i.e., bank loans and non-bank loans) than public bonds compared with firms with non-overconfident CEOs. The effect of CEO overconfidence is more pronounced during periods with high default spread, low GDP growth, and NBER recessions and among firms with higher distress risks and cash flow risks. We also find that the positive association between CEO overconfidence and issuance of private debt is not driven by debt maturity. To alleviate endogeneity concerns, we investigate matched samples and a subsample with exogenous CEO turnover events and find supportive and statistically stronger results.

Online Appendix to 'The Face of Risk: CEO’s Facial Masculinity and Firm Risk'

[enter Abstract Body]This online appendix has two parts. First, we provide additional regression results for the paper as robustness checks. Our additional regressions use alternative measures of facial masculinity and alternative measures of overconfidence as controls. The flow of the tables is in tandem with the flow of the discussion in the main text of the paper. Also, we show difference-in-difference analyses surrounding CEO turnovers in Table 5 of this appendix to support our argument in the paper. Second, we provide detailed description about our Python coding to automatically measure facial width to height ratio for the collected face pictures of the CEOs. Chapter 1. Robustness Checks with the CEO fWHR in the main text Chapter 2. Description of the algorithm to measure fWHR using Artificial Intelligence

Do Directorship Returns Affect CEO Turnover?

Boards staffed by directors who have experienced high stock returns at other firms where they hold directorships are more likely to fire their CEOs. A one-standard-deviation increase in such directorship returns increases the probability of forced turnover by 11-19%. Directorship returns have a larger impact when they are more recent and when CEO ability is harder or costlier to evaluate, consistent with boards using an availability heuristic to form beliefs about the ability gap between incumbent and replacement CEOs. Conditional on forced turnover, directorship returns are inversely correlated with subsequent improvements in operating performance, suggesting that such beliefs are suboptimal.

Does CEO Turnover Matter? Empirical Evidence from the Philippines

This study investigated the market reaction to announcements of CEO turnovers in Philippine-listed companies between January 2008 and December 2018. Turnovers were classified concerning successors’ origin (internal versus external), turnover type (forced versus voluntary), and successors’ gender (male versus female). Event study methodology using the market model was employed to analyze the hand-collected sample of 136 CEO turnover announcements. Market reaction was significantly positive for internal, external, and voluntary turnover. The market reaction, however, was found to be significantly negative in the case of forced turnover. Similarly, concerning the gender difference, the result showed that market reaction was significantly negative for female CEO appointments and significantly positive for male CEOs. The results provide strong evidence that new CEOs’ selected attributes and the turnover’s characteristics are factors that have the explanatory power on the investor’s reaction. The contributions of this study to the literature are threefold. First, it serves as the first empirical evidence of market reaction to CEO turnover from the Philippines emerging market. This study also confirms the finding of the previous studies on CEO turnover by looking into several turnover categories, namely external, internal, forced, and voluntary. Finally, it enriches the limited empirical evidence on the CEOs’ gender effect on abnormal return surrounding the turnover announcement date.

PENGARUH KOMPENSASI, LEVERAGE, UKURAN PERUSAHAAN , DAN DIVIDEN TERHADAP TURNOVER: STUDI EMPIRIS PADA PERUSAHAAN PERBANKAN DI INDONESIA

This study aimed to show empirical evidence of the correlation between compensation, leverage, dividend and firm size with the CEO turnover of banking companies in Indonesia. This study used banking companies in 2009 – 2016. The total research samples were 41 companies. The data analysis used multiple regression. The result of the study indicated that compensation, leverage and firm size had no correlation with the CEO turnover of the banking companies. However, the dividend had positive and significance influence towards the CEO turnover of the directors. Compensation given to the board of directors were unable to align the interests of management and shareholders. Besides, the directors did not take leverage and total assets in the CEO turnover consideration. Nevertheless, they consider dividend distribution conducted by the company.

실제이익조정과 농협조합 최고경영자 교체와의 관련성

실제이익조정과 농협조합 최고경영자 교체와의 관련성

(Dis)aggregated earnings forecasts and acquisition financing

Purpose The purpose of this paper is to examine how a firm’s mergers and acquisitions (M&A) goals influence its voluntary disclosure policy. Specifically, this paper examines how a firm’s M&A financing intentions influence the degree of aggregation in management guidance prior to and after the M&A transaction. Design/methodology/approach Using a logistic model, this study tests the relation between M&A financing and the decision to issue disaggregate earnings guidance for 3,929 acquiring firms from 2007 to 2011. Findings The logistic regression results show that firms are more likely to provide disaggregate earnings guidance when using mostly stock to finance M&A and that the incentives to disaggregate guidance vary throughout the M&A transactional window. Alternatively, because the value of cash is independent of the true value of the acquirer, the results show that firms offering mostly cash to finance M&A are less likely to issue disaggregate earnings forecasts. Additional analysis reveals that the decision to issue disaggregate earnings guidance also influences post-merger outcomes such as CEO turnover. Research limitations/implications The choice to disaggregate earnings guidance and the choice to use stock as a means to finance an acquisition is made by management, thus are endogenous which could introduce bias. Originality/value This study provides insights into management’s incentives and attitudes toward the use of management forecasts to effect a potential merger and acquisition. Given the flexibility management has in issuing voluntary forecasts, management can tailor a financial message toward investors and potential targets in attempt to facilitate a merger and acquisition and to further the firm’s goals.

Cog in the wheel: Resource release and the scope of interdependencies in corporate adjustment activities

AbstractResearch SummaryThis study characterizes and tests interdependencies in corporate activities used to adjust resources and implement change. Because each activity contributes only a partial result and depends on others to complete an intended change, constraining one can create a bottleneck that traps multiple other activities. For my empirical analysis, I leverage the staggered adoptions of employment protection laws intended to constrain one specific adjustment to one specific resource: dismissing employees. The constraint, however, not only affects the contraction but also the expansion in labor as well as capital investments, acquisition, divestiture, CEO turnover, and other adjustments, and increases (shortens) the persistence of negative (positive) performance. The expansive interdependencies are critical to understanding firm rigidity and resilience, implementation failures, and the persistence of firm performance.Managerial SummaryThis study shows how executing even a seemingly straightforward improvement requires piecing together a series of interdependent corporate strategic activities. As a result, a constraint on just one is sufficient to foil a successful firm response. Using changes in employment laws, I show that a firm's ability to dismiss employees not only affects firing, but also hiring, capital investments, acquisition, divestiture, and CEO turnover, and increases (shortens) the persistence of negative (positive) performance. Underestimating the complex and interdependent nature of these activities can lead to bias‐for‐action and contribute to implementation failures, such as cost overruns, schedule delays, and a post‐merger integration process that fails to realize expected synergies.

Cog in the Wheel: Resource Release and the Scope of Interdependencies in Adjustment Routines

We characterize and test interdependencies in corporate activities used to adjust a firm’s resource bundle. Because each activity contributes a partial result and depends on others to realize its value, constraining one can create a bottleneck that traps multiple other activities. We argue that such interdependencies are much more pervasive than suspected, linking a wide range of seemingly independent activities that have been examined in isolation. In testing our theory, we leverage the staggered adoptions of employment protection laws intended to constrain one specific adjustment to one specific resource: dismissing employees. The constraint, however, not only affects the contraction but also the expansion in labor as well as capital investments, acquisition, divestiture, CEO turnover, and other adjustments made by firms in responding to positive and negative performance. The expansive scope of interdependencies is critical to understanding firm rigidity, the dynamics of firm resource adjustments, and the persistence of firm performance.

How to Lower the Volatility in the Stock Market? More Reading Less Trading

This paper presents steps to lower the overall volatility in the stock market; as a large portion is unrewarded and unjustified and driven by overreaction accompanies with herd behavior. We first map the key factors that cause volatility, such as: earnings surprise, CEO turnovers, merge and acquisitions, etc. and then present our suggestions; where the key elements are: (i) fewer day/hours of trading, which in turn increases time to processing information; and (ii) semi-annual earnings reports instead of quarterly; smoothing the surprises. Following these suggestions, the volatility decreases by at least 15.5% per day. Collectively, we suggest to trade less and read more.

Leveling the Playing Field: Overconfident CEOs and the News in Short Interest

We study the informational role of overconfident CEOs. We find that the stocks of overconfident CEOs have lower analyst forecast dispersion, higher breadth of investor ownership, and lower informed trading intensity. These patterns also arise around CEO turnover. We also show that overconfident CEOs level the playing field between short sellers and other investors, as the (good) news in short interest (Boehmer, Huszar, and Jordan, 2010) exists only among stocks with non-overconfident CEOs and disappears among stocks with overconfident CEOs. Our results suggest that overconfident CEOs help increase information efficiency and lower the mispricing of their company shares.