Ownership or Performance: What Determines Board of Directors' Turnover in Italy?

38 Pages Posted: 11 Sep 2000

See all articles by Giorgio Brunello

Giorgio Brunello

University of Padova - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research); Institute for the Study of Labor (IZA)

Clara Graziano

Università degli Studi di Udine - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Bruno Parigi

Università degli Studi di Padova

Date Written: January 2000

Abstract

This paper studies the turnover of board of directors members in a sample of 72 companies listed on the Milan Stock Exchange during the period 1988-1996. We investigate whether board members change more frequently when company performance is poor, as the literature suggests, and whether and how the ownership structure of Italian companies affects these relationships. We find that there is a statistically significant and negative relationship between firm performance and CEO turnover and that this relationship depends on the ownership structure of firms. Turnover is lower in family controlled firms and higher in firms that experienced a change in the controlling shareholder. The latter firms also have a stronger turnover-performance relationship. We find evidence supporting the hypothesis that changes in control are an extreme form of turnover. We also find evidence of a monitoring role of the second largest shareholder. Also the turnover of top executives exhibits a negative relationship with performance. Board turnover instead is unrelated to performance but is related to the firm's ownership structure. Overall our findings suggest that the characteristics of the Italian economy deeply affect the turnover of directors and have implications that go beyond the specific case study.

JEL Classification: G34, J63

Suggested Citation

Brunello, Giorgio and Graziano, Clara and Parigi, Bruno, Ownership or Performance: What Determines Board of Directors' Turnover in Italy? (January 2000). IZA Discussion Paper No. 105. Available at SSRN: https://ssrn.com/abstract=224096 or http://dx.doi.org/10.2139/ssrn.224096

Giorgio Brunello (Contact Author)

University of Padova - Department of Economics ( email )

via Del Santo 33
35121 Padova
Italy
+39 049 827 4223 (Phone)
+39 049 827 4221 (Fax)

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

Clara Graziano

Università degli Studi di Udine - Department of Economics ( email )

Via Tomadini 30
33100 Udine
Italy
+0432+249216 (Phone)
+0432+249229 (Fax)

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

Bruno Parigi

Università degli Studi di Padova ( email )

Via 8 Febbraio, 2
Padova, Vicenza 35122
Italy

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