Ownership Structure and Top Management Turnover

Posted: 10 Sep 1999

See all articles by David J. Denis

David J. Denis

University of Pittsburgh

Diane K. Denis

University of Pittsburgh - Katz School of Business

Atulya Sarin

Santa Clara University - Department of Finance

Date Written: October 1994

Abstract

We report a significant negative relation between the fractional equity ownership of top executives and the likelihood of top management turnover. In addition, the relation between prior firm performance and the likelihood of turnover is statistically insignificant for firms in which the top executive owns more than 1% of the firm's shares. These findings suggest that managers become entrenched at very low ownership levels. Consistent with this interpretation, we find that the stock price reaction to a management change is significantly greater in firms in which the departing manager owns more than 1% of the firm's shares. Moreover, in these firms, the incoming manager's fractional ownership is typically less than 1% and the firm is subject to a higher rate of post-turnover corporate control activity. We also examine the influence of other aspects of ownership structure and find that turnover rates are higher in firms with unaffiliated blockholders and lower in firms with blockholders that are affiliated with incumbent managers.

JEL Classification: G32, G34

Suggested Citation

Denis, David J. and Denis, Diane K. and Sarin, Atulya, Ownership Structure and Top Management Turnover (October 1994). Available at SSRN: https://ssrn.com/abstract=5908

David J. Denis (Contact Author)

University of Pittsburgh ( email )

Katz Graduate School of Business
Pittsburgh, PA 15260
United States
412-648-1708 (Phone)

Diane K. Denis

University of Pittsburgh - Katz School of Business ( email )

368B Mervis Hall
Pittsburgh, PA 15260
United States
412-624-0296 (Phone)

Atulya Sarin

Santa Clara University - Department of Finance ( email )

Leavey School of Business and Administration
Santa Clara, CA 95053
United States
408-554-4953 (Phone)
408-904-4498 (Fax)

HOME PAGE: http://business.scu.edu/asarin

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