Governance with Poor Investor Protection: Evidence from Top Executive Turnover

42 Pages Posted: 12 Mar 2001

See all articles by Paolo F. Volpin

Paolo F. Volpin

City University London - Faculty of Finance; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Date Written: March 2001

Abstract

This paper analyzes executive turnover and firm valuation in Italy, a country that features all the characteristics of the most common governance structure around the world, as described by La Porta, et al. (1999): low legal protection for investors, firms with large controlling shareholders and pyramidal groups. The main findings are that turnover is significantly lower and unaffected by performance when the controlling shareholder of the firm is also a top executive in the firm, while it is more sensitive to performance when control is, to some extent, contestable and when the controlling shareholder owns a larger fraction of the firm's cash-flow rights. The results on valuation are the mirror image of those on turnover: the firm's Q is lower for companies with the controlling shareholder as a top executive, larger when a voting syndicate controls the firm, and increases with the fraction of cash-flow rights owned by the controlling shareholder.

Keywords: Management turnover, corporate governance, pyramidal groups

JEL Classification: G34, J63, L14

Suggested Citation

Volpin, Paolo F., Governance with Poor Investor Protection: Evidence from Top Executive Turnover (March 2001). Available at SSRN: https://ssrn.com/abstract=262789 or http://dx.doi.org/10.2139/ssrn.262789

Paolo F. Volpin (Contact Author)

City University London - Faculty of Finance ( email )

London, EC2Y 8HB
Great Britain

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http:/www.ecgi.org

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