Explaining Top Management Turnover in Private Corporations: The Role of Cross-Country Legal Institutions and Capital Market Forces

49 Pages Posted: 12 Jul 2013 Last revised: 11 Nov 2018

See all articles by Ugur Lel

Ugur Lel

University of Georgia - Department of Banking and Finance; European Corporate Governance Institute (ECGI)

Darius P. Miller

Southern Methodist University (SMU) - Finance Department

Natalia Reisel

Fordham University

Date Written: December 3, 2016

Abstract

We find that the strength of countries’ legal institutions can explain the ability of private firms to identify and terminate poorly performing managers. This finding is consistent with our hypothesis that governance problems in private firms are ameliorated by strong institutions that reduce the incentives of controllers of private firms to retain poorly performing managers. Comparing private firms to their public counterparts, we find that private firms have a lower propensity to replace poorly performing managers than public firms do and that public firms’ exposure to capital market forces (the market for corporate control and stock market scrutiny) explains this difference. Overall, our findings support theoretical predictions that minority shareholders in privately held corporations might be especially vulnerable to expropriation and suggest that capital market forces play an important role in limiting managerial entrenchment.

Keywords: Corporate governance, agency problems, private and public ownership, management turnover

JEL Classification: G32, G34, G15

Suggested Citation

Lel, Ugur and Miller, Darius P. and Reisel, Natalia, Explaining Top Management Turnover in Private Corporations: The Role of Cross-Country Legal Institutions and Capital Market Forces (December 3, 2016). Available at SSRN: https://ssrn.com/abstract=2292613 or http://dx.doi.org/10.2139/ssrn.2292613

Ugur Lel

University of Georgia - Department of Banking and Finance ( email )

Terry College of Business
Athens, GA 30602-6253
United States

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Darius P. Miller

Southern Methodist University (SMU) - Finance Department ( email )

United States

Natalia Reisel (Contact Author)

Fordham University ( email )

45 Columbus Ave
New York, NY 10023
United States

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