CEO Turnover in LBOs: The Role of Boards

Abstract

We examine the CEO turnover in LBOs backed by private equity funds. When a company is taken private, we find that the CEO turnover decreases and is less contingent on performance. We also find that a higher involvement of the LBO sponsors, who replace the outside directors on the board after transition to private, reduces the CEO turnover and its sensitivity to performance, but improves the operating performance. These findings suggest that more inside information and effective monitoring allow private equity funds to assess CEOs' performance over a longer horizon relative to their publicly-traded counterparts.

Keywords: CEO Turnover, Private Equity, Leveraged Buyouts, Boards of Directors, Corporate Governance

JEL Classification: G34, G30, G24