Firm Turnover Research Articles

CEO turnover in family firms: How social exchange relationships influence whether a non-family CEO stays or leaves

Interpersonal relationships are an important factor in organizations, and a growing number of articles examine how such relationships affect why people stay or leave organizations. In this article, we investigate how affective attachment between actors influences the turnover and retention process of non-family CEOs in family firms. By employing a social exchange perspective, we reveal under which conditions affective attachment come into being. We focus on the relationship between a non-family CEO and two generations of the owner family. Conceptualizing their relationship as an exchange triad, we show how imbalances influence the affective attachment created in this triad and outline the implications for turnover. Our article contributes to the literature on family businesses and turnover by linking the affective side of interpersonal relationships to CEO retention and turnover.

Financial performance and non‐family CEO turnover in private family firms under different conditions of ownership and governance

AbstractManuscript TypeEmpiricalResearch Question/IssueFamily firms, as insider‐controlled companies, should be less likely to exhibit CEO turnover after poor performance and may thus promote enhanced focus on long‐term goals. However, when a non‐family CEO is in charge, the relatively limited empirical evidence is contrasting. Some studies find that only family CEOs are immune from the threat of dismissal following poor financial performance, while other studies show that family firms discipline their CEOs for poor financial performance regardless of their family status. In this work, we try to reconcile these contrasting findings and investigate what ownership and governance conditions influence the owners’ pressure on the CEO to achieve short‐term financial results.Research findings/insightsDrawing on a longitudinal dataset that covers the entire population of Italian medium and large family companies, we find that when family ownership is concentrated in the hands of few family shareholders or there is a low number of family members involved in the board of directors, non‐family CEOs are less likely to be dismissed after poor performance.Theoretical/Academic ImplicationsOur study, adopting the behavioral agency theory as the guiding framework, highlights the importance for governance decisions of the potential goal divergence among principals in closely held ownership structures. Our results also add to the still scant literature on the relationship between family owners and non‐family CEOs.Practitioner/Policy ImplicationsOur research suggests that, in the decision to hire a non‐family CEO, family business owners should not only assess their gaps in managerial skills but also carefully consider the ownership structure and family involvement conditions. On the side of professional non‐family managers, our results offer insights on ways to address the employment relationship with the controlling family.

CEO Turnover–Performance Sensitivity in Private Firms

We compare chief executive officer (CEO) turnover in public and large private firms. Public firms have higher turnover rates and exhibit greater turnover–performance sensitivity (TPS) than private firms. When we control for pre-turnover performance, performance improvements are greater for private firms than for public firms. We investigate whether these differences are due to differences in quality of accounting information, the CEO candidate pool, CEO power, board structure, ownership structure, investor horizon, or certain unobservable differences between public and private firms. One factor contributing to public firms’ higher turnover rates and greater TPS appears to be investor myopia.

Do fixed links affect the local labour markets and industries? A case study of three fixed link projects in Norway

The interaction between infrastructure improvement and regional economic growth has been a key question within transport research for decades. The size of these benefits, and if they actually materialize, is still a question for debate. Further knowledge within this field is essential because many countries are in the process of including these additional economic benefits in their cost benefit analyses. There is consensus in the literature that focus should be on ex-post analysis at a firm level for projects that dramatically change accessibility. However, the number of studies following these recommendations is scarce. This paper contributes to fill the gap by analysing indications of potential agglomeration benefits for 19,000 firms affected by three fixed link projects that connect islands to the mainland. We compare them to similar areas that do not get a connection and identify changes in the local labour market and industries. Firstly, a difference in difference method was used to calculate changes, and trend shifts within accompanying variables were detected. Secondly, interviews of affected industries were also carried out to test our hypothesis. Our analysis shows that (1) there is an increase in the number of commuters between the connected islands and the mainland. (2) There is growth in the total number of employees and (3) in the total number of firms in all connected islands. (4) The newly connected islands seem to attract more firms than before. (5) However, we find small changes in firm turnover, suggesting that increased competition offsets the number of new customers a fixed link might provide.

Agglomeration and Firm Turnover in Punjab

The literature on industrial organization shows that geographic and industrial concentration affects firm turnover. This study conducts a firm-level analysis to gauge the impact of agglomeration on firm entry and exit in domestic industries in Punjab, Pakistan. It also illustrates how certain industries exist in clusters while others are highly dispersed. The results suggest that higher rates of firm entry and exit are associated with highly agglomerated industries.

Error announcements, auditor turnover, and earnings management – Evidence from Germany

Error announcements shall in principle unfold both a preventative and a sanctioning function via adverse publicity. While US research provides large and unambiguous evidence of sanctions which are based on capital market reactions, but also personal consequences of responsible managers and auditors, the few studies which investigated the German enforcement system do not yield comparable results, thereby questioning its efficacy. Building on this, we first investigate for the German enforcement setting whether error announcements lead to abnormal turnover of audit teams and audit firms than comparable non-error firms by using logistic regression. Second, we analyze whether audit team or audit firm turnover results in improved accounting quality. To do so, we proxy accounting quality with well-established earnings management models and explore the turnover’s impact on accounting quality with a difference-in-difference approach. Our results do not provide evidence of increased audit firm turnover due to error announcements, thereby contradicting studies from the US; the same holds for changes of the responsible audit teams. However, our results suggest that firms with changes of the audit firm or audit team exhibit an increase in accounting quality, which however takes place already in the time gap between error announcement and auditor change. Consequently, we interpret auditor changes serving as a signal of improved corporate governance, rather than indeed improving corporate governance.

Go before the whistle blows: an empirical analysis of director turnover and financial fraud

This study investigates whether outside directors are aware of financial fraud. Our analysis focuses on the abnormal turnover of these directors during the fraud committing period, before fraud is discovered and before lawsuits are filed. Our empirical analysis shows that, during the fraud committing period, outside directors in fraud firms exhibit an abnormal level of turnover. Examining the characteristics of outside directors and boards at these fraud firms, we find strong evidence that female directors, directors who have greater stock ownership in the firm, and directors with multiple directorships at other firms are more likely to depart fraud firms. We also find some evidence that board size, number of meetings, and fraction of financial experts are related to abnormal turnover in fraud firms during the fraud committing period. We show that abnormal director turnover is significantly higher for fraud that is considered more egregious (i.e., involving fictitious transactions and disclosure problems). Lastly, directors are more likely to depart fraud firms with more serious fraud, as proxied by higher ex-post settlement amounts and longer fraud duration.

Assessing the economic feasibility of high heat treatment, using evidence obtained from pasta factories in Sicily (Italy)

Pest control in pasta processing industries is considered to be one of the activities that can have the greatest impact on the environment. However, the adoption of techniques with a lower environmental impact can result in increased production costs that may discourage their adoption by firms, if not adequately compensated by corresponding increase in revenue. The main objective of this study is to evaluate the economic feasibility of High Heat Treatments, a physical method for pest control in industrial plants that produce pasta in Sicily (Italy). A Benefit-Cost Analysis has been conducted in which the costs refer to the implementation of the High Heat Treatments and the benefits were estimated in terms of the potential increase in the pasta factory's turnover. Increases in turnover derive from the impact of a hypothetical eco-friendly mark, based on the consumer's Willingness To Pay for pasta produced by a production process that reduces environmental impact. The results of the Benefit-Cost Analysis have demonstrated that the premium price that consumers recognise for pasta produced with eco-friendly techniques could ensure an increase in turnover of firms making High Heat Treatments economically feasible for the pasta-making industry. Furthermore, this paper could be a guideline for future research towards an integration of non-hypothetical open-ended choice experiment and the economic analysis tool within Benefit-Cost Analysis.

The effects of audit partner pre-client and client-specific experience on audit quality and on perceptions of audit quality

We examine the associations between audit partner pre-client and client-specific experience and audit quality using data from Taiwan, where signing audit partner names are disclosed. Using discretionary accruals and interest rate spreads to proxy for audit quality and perceptions of audit quality, respectively, we find that both pre-client and client-specific experience improve audit quality and creditor perceptions of audit quality. We also find that audit partner pre-client experience is positively associated with audit quality early in the engagement, but not when the partner has been with the client for at least five years. Our findings provide evidence consistent with the assumption underlying the Public Company Accounting Oversight Board’s decision to require the disclosure of engagement partner names. They also suggest that pre-client experience cannot completely mitigate the loss of client-specific knowledge when partner or audit firm turnover occurs.

Firm Turnover and Inflation Dynamics

This paper examines the role of firm turnover in explaining inflation dynamics. I augment a New-Keynesian DSGE model with endogenous entry and exogenous stochastic exit and estimate with the Bayesian full information approach for the US economy. Results show that shocks to the entry cost explain more than half of the inflation variance at the business cycle frequencies. When it is cheap to create firms, the number of new firms goes up and inflation increases as labour intensive creation of firms pushes up the demand for labour. Only gradually, when the number of firms is high and the number of new firms goes down again, does inflation fall, as stressed by the standard mechanism for an increasing number of firms

Monetary transmission mechanism with firm turnover

An expansionary monetary policy shock increases the entry rate and the number of firms in the US. A pure sticky price model predicts that the number of firms in the economy should go down after a monetary expansion, but this prediction is at odds with the empirical findings. In marked contrast, the cost channel mechanism generates an increase in the number of firms that is consistent with the data. A key insight is that the greater price stickiness is, the stronger the cost channel needs to be to generate firm dynamics that are consistent with the data.

Monetary Transmission Mechanism with Firm Turnover

An expansionary monetary policy shock increases the entry rate and the number of firms in the US. A pure sticky price model predicts that the number of firms in the economy should go down after a monetary expansion, but this prediction is at odds with the empirical findings. In marked contrast, the cost channel mechanism generates an increase in the number of firms that is consistent with the data. A key insight is that the greater price stickiness is, the stronger the cost channel needs to be to generate firm dynamics that are consistent with the data.

An Empirical Investigation on CEO Turnover in IT Firms and Firm Performance

ABSTRACT Drawn upon upper echelon theory and organizational theory, this research proposes to examine the impact of CEO turnover in IT firms on firm performance in terms of both sustainable accounting performance and market performance. We find that CEO turnover is a significant determinant of firm performance, especially in IT firms. This paper contributes to the IS literature by investigating the CEO turnover impact in IT firms compared to other industries. This study also has practical implications by providing the guideline for IT firms on the CEO turnover policy. Such firms should place additional emphasis on their succession planning efforts. Keywords: Information technology, CEO turnover, Firm performance, IT business value INTRODUCTION Upper Echelon theory has identified the role of senior executives such as the CEO to be pivotal in the successful operation of organizations, and indicated that senior management teams are significant determinants of firm performance. Executives' managerial knowledge, skills, experiences, values, and personalities greatly impact their interpretations of the situations and facilitate formulation of appropriate strategic alternatives (Carpenter, 2004; Hambrick & Mason, 1984). Hannan and Freeman (1984) found evidence that the organizational change, including leadership turnover, is disruptive rather than adaptive. The introduction of new senior executives including the CEO is more likely to disrupt organizational routines and relationships, which result in decreasing in firm performance (Boyne et al., 2011; Hannan & Freeman, 1984). The relationship between executive turnover and firm performance remains one of the most interesting problems for organizations. Prior research has extensively examined the relationship (Adams & Mansi, 2009; Boyne et al., 2011; Hamori & Koyuncu, 2015; He et al., 2011; Huson et al., 2004; Lin et al., 2008; Shen & Cannella, 2002). Results have had mixed findings. Some suggested a positive relationship; some claimed a negative relationship; while others found that there is no association between CEO turnover and firm performance. Furthermore, little research has been done on the impact of CEO turnover on firm performance on distinctive industries or areas. For example, He et al. (2011) examined the impact in the property-liability insurance industry, and found that such firms with a CEO turnover experience more favorable performance changes. Kacmar et al. (2006) studied the impact in fast food, and found that CEO turnover is related to a reduction in firm performance. Likewise, the effect of CEO turnover in IT specific firms on firm performance remains under-researched. IT firms play an important role in today's environment. They are focused on technological activities and have developed innovative products, services, and processes. IT firms have specific characteristics that make them distinct from non-IT firms, for example, the fast pace of technological change and their low cost of entry (Banker et al., 2009). As such, the CEO is an important character for these organizations. Their responsibilities include making timely strategic decisions in response to both changes in technology as well as changes in the market. Therefore we believe that these firms are more likely to experience negative impacts when there is CEO turnover, motivating our desire to study the impact of CEO turnover in IT firms. The research of the impact of CEO turnover in IT firms on firm performance is limited. To fill this research gap and gain a deeper understanding of CEO turnover impact on firm performance, especially in IT firms, we intend to address the following research question: how is CEO turnover in IT firms related to firm performance. To answer this question, we draw upon the prior literature that examines the relationship between CEO turnover and firm performance to develop our research model. …

Market distortions and aggregate productivity: Evidence from Chinese energy enterprises

Market distortions can generate resource misallocations across heterogeneous firms and reduce aggregate productivity. This paper measures market distortions and aggregate productivity growth in China's energy sector. We use the wedge between output elasticities and factor shares in revenues to recover a measure of firm-level market distortions. Using data on a large sample of Chinese energy enterprises from 1999 to 2007, our estimations provide strong evidence of the existence of both factor and product market distortions within and across China's various energy industries. The productivity aggregation and decomposition results demonstrate that the estimated aggregate productivity growth (APG) is, on average, 2.595% points per year, of which technological change, resource reallocation, and firm entries and exits account for 1.981, 0.068, and 0.546% points, respectively. The weak contributions of resource reallocation and firm turnover to APG are also found in energy sub-industries, except in the coal industry. Our research suggests that China's energy sector has major potential for productivity gains from resource reallocation through the reduction of market distortions.

THE DISCIPLINARY ROLE OF FAILED TAKEOVER ATTEMPTS

AbstractI find that the CEO turnover in target firms following failed takeover attempts is 21% greater than matched nontarget firms and negatively correlated with stock returns both before and during the attempt. Target firms are 14% more likely than matched nontarget firms to initiate corporate restructurings during the failed attempt. Restructured firms have more positive stock returns during this period and are less likely to experience subsequent CEO turnover. When restructurings do not occur, active outside blockholders are more likely to emerge and facilitate CEO turnover. These findings indicate that failed takeover attempts can play a disciplinary role.

The effects of corporate acquisitions on CEO compensation and CEO turnover of family firms

This paper investigates the impact of corporate acquisitions on CEO compensation and CEO turnover of family firms in Continental Europe. We find that CEOs in family firms do not experience an increase in their compensation during the post-acquisition period, while there is a positive and statistically significant association between the compensation of CEOs in non-family firms and their acquisition activity. This finding is consistent with the view that controlling family shareholders provide monitoring for CEOs mitigating managerial agency problems that arise from the separation of ownership and control. Further, we find that the likelihood of CEO turnover declines following an acquisition in non-family firms, suggesting that these acquiring CEOs do not face a higher likelihood of dismissal while they receive a higher level of compensation. In contrast, there is no significant impact of acquisitions on CEO turnover in family firms.

Firm Performance and CEO Turnover: A Subnational Institutional Perspective

The relationship between poor firm performance and CEO turnover has been thoroughly examined in the developed country context. However, the relationship is less clear in the emerging economy contex...

Banks as Corporate Monitors: Evidence from CEO Turnovers in China

​This paper examines the governance role of banks in replacement of underperforming CEOs in firms listed on Chinese stock exchanges. Under most circumstances, the findings suggest that the presence of outstanding loans does not increase the probability that a poorly performing CEO will be forced out and replaced. However, there is a positive and significant effect if the under-performing firm relies heavily on secured and short-term bank lending. Bank loans increase the likelihood of a forced CEO turnover in private firms, especially where joint-equity banks serve as the main lenders to the firm. There is no similar increase in the probability of a CEO turnover for state-owned firms or firms that borrow mainly from state-owned banks. Thus, where state ownership of banks and listed firms implies inefficiency or reluctance on monitoring borrower performance, there is an opportunity to improve loan contract arrangements to improve the monitoring role of lending banks.

Equilibrium Labor Turnover, Firm Growth, and Unemployment

This paper considers equilibrium quit turnover in a frictional labor market with costly hiring by firms, where large firms employ many workers and face both aggregate and firm specific productivity shocks. There is exogenous firm turnover as new (small) startups enter the market over time, while some existing firms fail and exit. Individual firm growth rates are disperse and evolve stochastically. The paper highlights how dynamic monopsony, where firms trade off lower wages against higher (endogenous) employee quit rates, yields excessive job-to-job quits. Such quits directly crowd out the reemployment prospects of the unemployed. With finite firm productivity states, stochastic equilibrium is fully tractable and can be computed using standard numerical techniques.

Do Corporate Acquisitions Influence CEO Compensation? Empirical Evidence from Continental Europe

This paper investigates the impact of corporate acquisitions on CEO compensation and CEO turnover of family firms in Continental Europe. We find that CEOs in family firms do not experience an increase in their compensation during the post-acquisition period, while there is a positive and statistically significant association between the compensation of CEOs in non-family firms and their acquisition activity. This finding is consistent with the view that controlling family shareholders provide monitoring for CEOs mitigating managerial agency problems that arise from the separation of ownership and control. Further, we find that the likelihood of CEO turnover declines following an acquisition in non-family firms, suggesting that these acquiring CEOs do not face a higher likelihood of dismissal while they receive a higher level of compensation. In contrast, there is no significant impact of acquisitions on CEO turnover in family firms.