Endogenously Determined CEO Turnover: The Struggle for Continuance in Listed and Unlisted Firms

74 Pages Posted: 25 Jun 2009

See all articles by Esteban Lafuente

Esteban Lafuente

Universitat Politecnica de Catalunya (UPC Barcelona Tech)

Miguel A. García-Cestona

Universitat Autonoma de Barcelona (UAB) - Department d'Economia de l'Empresa

Date Written: June 15, 2009

Abstract

This paper examines the relationship between performance and CEO turnover in Spanish listed and large unlisted firms for the period 1998-2004. Following the Bover and Arellano (1997) approach, we carry out a dynamic binary choice model where the decision to replace a CEO includes lags of the dependent variable, previous performance, and previous changes in the chairman position as endogenous determinants of this governance intervention. We find that for both listed and unlisted firms, previous performance changes are negatively correlated with CEO turnover. Furthermore, listed and unlisted firms follow different paths when taking decisions linked to CEO replacements: whereas unlisted firms are less likely to replace a recently hired CEO, listed companies appear more impatient. Finally, ownership concentration and the presence of banks are also important determinants of CEO turnover decisions, but only for listed firms. Our results give support to the growing call by academics who highlight the importance of controlling endogeneity to correctly examine the determinants of governance interventions.

Keywords: Corporate governance, CEO turnover, ownership structure

JEL Classification: C23, G21, G3

Suggested Citation

Lafuente, Esteban and García Cestona, Miguel Ángel, Endogenously Determined CEO Turnover: The Struggle for Continuance in Listed and Unlisted Firms (June 15, 2009). Available at SSRN: https://ssrn.com/abstract=1425304 or http://dx.doi.org/10.2139/ssrn.1425304

Esteban Lafuente

Universitat Politecnica de Catalunya (UPC Barcelona Tech) ( email )

Barcelona, Barcelona
Spain

Miguel Ángel García Cestona (Contact Author)

Universitat Autonoma de Barcelona (UAB) - Department d'Economia de l'Empresa ( email )

Campus Bellaterra, Edifici B.
Bellaterra (Barcelona), 08193
Spain
+34 93 5812147 (Phone)
+34 93 5812555 (Fax)

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