CEO Turnover, Forced Chairman Replacements and Firm Performance: Case of the Costa Rican Banking System

38 Pages Posted: 10 Jul 2007

See all articles by Esteban Lafuente

Esteban Lafuente

Universitat Politecnica de Catalunya (UPC Barcelona Tech)

Miguel A. García-Cestona

Universitat Autonoma de Barcelona (UAB) - Department d'Economia de l'Empresa

Date Written: July 5, 2007

Abstract

The paper examines the effectiveness of corporate governance mechanisms in the Costa Rican banking sector, an industry characterised by fully outside boards. Using a rich data set from the Costa Rican Central Bank for the period 1999-2004, we carry out a regression analysis using the GMM technique in order to address endogeneity and firm-specific effects. The main contribution of the paper indicates that corporate governance matters for improving performance. Empirical findings indicate that investors view forced Chairman departure followed by an outsider and the appointment of an outside CEO as positive events, since these events create the conditions for organisational change leading to significant improvements in firm performance. In addition, results suggest that forced replacement of board members is an abrupt process that creates costs that outweigh its benefits.

Keywords: Corporate Governance, Executive Turnover, Firm Performance

JEL Classification: G21, G3

Suggested Citation

Lafuente, Esteban and García Cestona, Miguel Ángel, CEO Turnover, Forced Chairman Replacements and Firm Performance: Case of the Costa Rican Banking System (July 5, 2007). Available at SSRN: https://ssrn.com/abstract=998510 or http://dx.doi.org/10.2139/ssrn.998510

Esteban Lafuente (Contact Author)

Universitat Politecnica de Catalunya (UPC Barcelona Tech) ( email )

Barcelona, Barcelona
Spain

Miguel Ángel García Cestona

Universitat Autonoma de Barcelona (UAB) - Department d'Economia de l'Empresa ( email )

Campus Bellaterra, Edifici B.
Bellaterra (Barcelona), 08193
Spain
+34 93 5812147 (Phone)
+34 93 5812555 (Fax)

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