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CEO and Director Turnover in Venezuela

Interamerican Development Bank Working Paper No. R-517

Posted: 2 Jul 2008  

Urbi Garay

Instituto de Estudios Superiores de Administración (IESA)

Maximiliano González

Universidad de los Andes, Colombia - School of Management; Instituto de Estudios Superiores de Administración (IESA)

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Date Written: November 2005

Abstract

The aim of this study is to achieve a better understanding of corporate governance structures and mechanisms outside the United States by looking at a specific emerging economy: Venezuela. We first build a corporate governance practices index for publicly listed companies in this country; the overall results indicate that Venezuela exhibits relatively low corporate governance scores. Using this limited sample, we are able to find a positive relation between this corporate governance index and its sub-components and alternative measures of value (Tobin's q, price-to-book ratio, and dividend payout). In this environment, together with an underdeveloped financial market, a weak legal system, poor law enforcement, and high ownership concentration, we then address the question of whether the existing corporate governance system works at all in Venezuela. In particular, we are interested in studying the following two questions, which constitute a necessary condition for any corporate governance system to work. First, are poorly-performing CEOs more likely to be removed compared to well-performing CEOs? Second, is the role of the board to monitor the CEO or merely to serve as an advisor? To this end, we collected detailed data from 51 Venezuelan firms from 1984 to 2002. After controlling for characteristics related to CEO, board, ownership, firms, and time periods, we find that poor financial performance significantly increases the likelihood of CEO and director turnover. The empirical evidence is also consistent with the idea that directors in Venezuela play mainly an advisory role and not a monitoring role of the CEO.

Suggested Citation

Garay, Urbi and González, Maximiliano, CEO and Director Turnover in Venezuela (November 2005). Interamerican Development Bank Working Paper No. R-517. Available at SSRN: https://ssrn.com/abstract=1154182

Urbi Garay (Contact Author)

Instituto de Estudios Superiores de Administración (IESA) ( email )

San Bernardino 1010, Caracas
Venezuela
+58 2 5554242 (Phone)
+58 2 5510812 (Fax)

Maximiliano Gonzalez

Universidad de los Andes, Colombia - School of Management ( email )

Carrera Primera # 18A-12
Bogotá
Colombia

Instituto de Estudios Superiores de Administración (IESA) ( email )

C/ Campo Santo de los Mártires, 7
San Bernardo 1010, Caracas, Córdoba 14004
Venezuela

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