A Comparison of Profitability and CEO Turnover Sensitivity in Large Private and Public Firms

47 Pages Posted: 12 Jun 2003

See all articles by Jeffrey L. Coles

Jeffrey L. Coles

University of Utah - Department of Finance; Arizona State University (ASU) - Finance Department

Michael L. Lemmon

University of Utah - Department of Finance

Lalitha Naveen

Temple University - Department of Finance

Date Written: February 19, 2003

Abstract

We construct a large sample of both private and public firms from a broad set of industries to provide a direct comparison of efficiency, profitability, and incentive alignment. We find that operating profit scaled by sales and net profit to sales in private firms are less than half those in public firms. Moreover, we find no evidence that CEO turnover is more sensitive to change in scaled profitability in private firms than in public firms. These results are robust to controls for risk, managerial ownership, industry, whether the CEO is a founder or family member, and firm size. High sensitivity of CEO turnover to performance, one possible way to align managerial and shareholder interests, is not prominently featured in the organization design of private firms, which is consistent with our finding that private firms are less profitable than public firms.

JEL Classification: G32, G34

Suggested Citation

Coles, Jeffrey L. and Lemmon, Michael L. and Naveen, Lalitha, A Comparison of Profitability and CEO Turnover Sensitivity in Large Private and Public Firms (February 19, 2003). Available at SSRN: https://ssrn.com/abstract=391103 or http://dx.doi.org/10.2139/ssrn.391103

Jeffrey L. Coles

University of Utah - Department of Finance ( email )

David Eccles School of Business
Salt Lake City, UT 84112
United States
801-587-9093 (Phone)

Arizona State University (ASU) - Finance Department ( email )

W. P. Carey School of Business
P.O. Box 873906
Tempe, AZ 85287-3906
United States
480-965-4475 (Phone)
480-965-8539 (Fax)

Michael L. Lemmon

University of Utah - Department of Finance ( email )

David Eccles School of Business
Salt Lake City, UT 84112
United States
801-585-5210 (Phone)
801-581-7214 (Fax)

Lalitha Naveen (Contact Author)

Temple University - Department of Finance ( email )

Fox School of Business and Management
Philadelphia, PA 19122
United States
215-204-6435 (Phone)

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